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^/^^/ USE AND ABUSE V^Av^^ 
OF MONEY 



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LIBRARY OF CONGRESS. 



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UNIVERSITY EXTENSION MANUALS \ ^ ^ \ 
EDITED BY PROFESSOR KNIGHT 



THE USE AND ABUSE 



OF 



MONEY 



THE USE AND ABUSE 



OF 



MONEY 






¥ 



BY 



W/ CUNNINGHAM, D. D. 



VICAR OF GREAT ST. MARY S, AND UNIVERSITY LECTURER, CAMBRIDGE 



'Q>vr"'%\ 



O.i .1 lo-l 



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NEW YORK 

CHARLES SCRIBNER'S SONS 

1891 

\^All rights reserved.'] 



W3 ni 
'5 



COPYRIGHT, 189I, 
BY CHARLES SCRIBNER'S SONS. 



PREFACE. 



This book is intended for those who are already 
famihar with the outUnes of the subject, and it is meant 
to help them to think on topics about which everybody 
talks. Primers and elementary manuals of economic 
science usually make a general assumption about 
human nature, and take for granted that man is actuated 
by a single motive, — the desire of wealth. But if we 
examine in greater detail the personal qualities and 
various motives that influence conduct in regard to 
economic affairs, we shall obtain a more complete ex- 
planation of the observed phenomena, and we shall also 
be better able to bring our knowledge to bear on actual 
occurrences. 

I cannot hope that those who read this Manual 
will agree with all the conclusions reached. It deals 
throughout with subjects on which there are many 
conflicting opinions, and it deals with them from a 
single and well-defined standpoint. It aims at working 



vi Preface 

towards a consistent treatment of social difficulties, 
not by propounding any new doctrine, but by recog- 
nising that each of the conflicting doctrines has some 
elements of truth, and by suggesting the questions 
How far, and within what limits is this opinion true? 

The subject discussed is Capital in its Relation to 
Social Progress. When first entering on economic 
studies we are advised to lay aside all other matters, 
and confine our attention to wealth as something we can 
isolate from other social phenomena. And this is the 
simplest way to begin and the best way to go on for 
examining some problems, but not for examining all. 
It is necessary for some purposes to look at these mat- 
ters in another way, and to consider an economic force, 
not apart from, but in its relation to the other sides 
of human life and interest. In the present day, when 
Capital dominates in so many directions, it is not un- 
interesting to select this particular factor, and consider 
the part which Capital has played and its bearing on 
the material progress of the race. Thus we shall traverse 
a field which affords us an opportunity of surveying the 
strong positions occupied by modern socialists. 

But though this is its subject, the book is called, 
The Use and Abuse of Money, I wish to lay stress on 
the element of personal responsibility. Much has been 
written about the duties of landowners, and it seems 
worth while to say a little about the responsibilities of 
moneyed men for the manner in which they employ their 
capital and spend their income. When people discuss 
economic matters as if the changes were due to a play 



Preface vii 

of forces that act on men and so impel men, the import- 
ance of the part played by the man himself is obscured. 
Man in his highest aspects, and the best of all he does, 
is not susceptible of thorough treatment by economic 
science, so long as it concentrates attention on the play 
of measurable motive forces. As has been well said, 
' much of the best work of the world has no price, and 
evades altogether the economic calculus.' Mill's great 
achievement as an economist was in his attempt to 
combine a careful study of the higgling of the market 
with a full recognition of the importance of the nobler 
elements in human nature, and a study of the increase 
of wealth with discussions of the improvement of society. 
Though recent economists have done much to correct 
his solution of particular problems, it is not clear that 
they have been wise in deliberately rejecting the exam- 
ple he set them of bringing into prominence ' the human 
as opposed to the mechanical element in economics.' 
The present sketch simply follows out some of the sug- 
gestions made by Mill, with the view of raising the 
question. Whether a full recognition of the hiunan ele- 
ment in economics may not be the best means of attaining 
to clear definitions of economic terms, and to the distinct 
statement and thorough discussion of fundamental economic 
problems ? 

As one of the pioneers of the University Extension 
Movement in 1874, I found great advantage in provid- 
ing a careful syllabus. I have thought it worth while 
to prefix a similar syllabus to this Manual. It mentions 
the names of several books which will enable readers 



viii Preface 

to pursue their studies further; but I have not insisted 
on burdening the pages of a popular treatise with de- 
tailed references to authorities in regard to every matter 
of fact to which allusion is made. 

W. C. 

Trinity College, Cambridge, 
November, 1890. 



SYLLABUS OF THE SUBJECT AND 
BOOKS FOR REFERENCE. 



PART I. 
SOCIAL PROBLEMS. 



CHAPTER I. 

POLITICAL ECONOMY WITH ASSUMPTIONS AND WITHOUT. 

I. 

1. Adam Smith made an advance on his predecessors, because he 
did not discuss the maintenance of national power, but concentrated 
attention on one element — wealth. He stated the problems re- 
garding political prosperity in a more general form than either 
mercantilists, physiocrats, or other writers had done . Page I 

2. He assumed the existing social order and current motives. 
Most economists have followed him in taking for granted the facts 
of human nature and of the physical world. Mill, Political Econo?jiy, 
P- 13 2 

II. 

For some purposes it is convenient to start with such assumptions, 
but, 

1. It is difficult to make the most convenient assumption about 
changing nature, and still more so to state precisely what has been 
assumed. Mill, Political Econotny, II, iv. § I . . . 4 

2. It may be confusing, since it is not easy to divest ourselves of 
these fundamental assumptions when we try to do so, as our very 
language involves them 5 

3. It is disappointing to find that we have made so little advance 
towards the scientific treatment of questions which lie beyond our 
assumptions, and require us to recognise changes in human nature 
itself 6 



X Syllabus of the Subject 

III. 

We are therefore forced, in order to apply our economic laws, if 
for no other purpose, to enter on an economic investigation of a 
purely empirical character Page 8 

1. Such empirical investigations may be possible when the hypo- 
thetical method is least applicable 8 

2. Each method of investigation supplements the other, but they 
may be contrasted for the sake of distinctness. We cannot dispense 
with either, but it is important to understand at each step how we 
are proceeding, and what is the value of our results . . 9 

3. The hypothetical method of investigation follows the analogy 
of Mechanics, and gives 1 1 

{a) Results which are universally valid . . . .11 

(J?) It reduces all human desires to their most general form, 

Jevons, Theory of Political Econojny, 31, and rejects rigid 

definitions of terms. ^2Lg€^<:)\., Economic Studies, d^() II 

(f) It applies conceptions drawn from Mechanical Science 12 

4. Empirical investigation results in statements of what is actually 
true, over a larger or smaller area and for a longer or shorter time; 
and it requires precision in the use of the terms employed to 
analyse personal motives 13 

IV. 
Object and method of the present enquiry regarding the use and 
abuse of capital 14 

CHAPTER II. 

INDUSTRY WITHOUT CAPITAL. 

I. 

1. Capital is commonly regarded in the present day as a fund of 
wealth which can be realised in money, and from which the owner 
expects to derive an income in money . . . . .16 

2. Villagers who do not use their hoards regularly, but merely 
keep them as a reserve for times of special need, and tribes that do 
not form hoards, have no capital 17 

3. And since they are able to produce the supplies they need, 
it is not true to say that capital is a requisite of production in all 
times and places 17 

4. There may be something analogous among primitive peoples, 
but we must beware of extending the use of terms by analogy . 18 

5. It is especially necessary to be careful with economic terms, so 
that we may be able to discriminate the various stages in a con- 
tinuous process 19 



Syllabus of the Subject xi 

11. 

1. Man and his environment act and react on each other. We 
may describe the process of national progress in terms drawn from 
the nature of man (^personal) , or in physical terms drawn from his 
surroundings ......... Page 19 

2. Physical circumstances mark the barriers which limit farther 
progress, until an increase of skill enables man to pass these limits 20 

3. Physical circumstances enable us to describe the extent of the 
difference between savage and civilised peoples; personal qualities 
are the powerful factors in effecting progress .... 21 

4. Condition for the formation of hoards of money. 

(«) Regular trading communications and a circulating medium 
are necessary physical conditions for the formation of 
capital 21 

(3) Friendly intercourse, skill, and foresight are necessary 
personal qualities. Brooke, Ten Years in Sarawak, i. 
156 22 

5. Conditions for the use of money-hoards as capital. Working 
for sale and a profit, not directly for livelihood. The gradual intro- 
duction of capitalistic organisation in different industries . 24 

III. 

1. Economists have been accustomed to treat capital employed 
in industry as the typical if not the only form of capital. Bohm- 
Bawerk, Kapital und Kapitahins, II. Abtheil. 38. This must lead 
to giving too narrow a definition of capital, and may lead to a mis- 
understanding of its functions 27 

2. Capital is an ' historic ' category, as the economic conditions 
which render it possible have appeared in historic times. But these 
conditions are so deeply seated that it may be regarded as likely to 
be a very permanent factor now that it has come into being. Marx, 
Das Capital, 128. Diihring, Geschichte der Nationalokonomie u. 
des Socialismiis, 480 27 

CHAPTER III. 

CAPITALIST ERA. 
1. 

The Capitalist Era in England. 

1. Capital permeates the whole of our industrial life; this change 
has taken place since the fifteenth century, both in manufacturing 
and in industry. See my Growth of English Industry and Commerce, 
391 30 

2. It also exercises great political power . . . .31 

3. And many philanthropists urge the wider diffusion of capital 
as a means of social reform 32 



xii Syllabus of the Subject 

II. 

The Capitalist Era in Rome. A. Deloume, Manieurs d' argent. 

1. Contractors farming the taxes, and carrying on all great undertak- 
ings. Polybius, i^zj/. vi. 17; Qicexo, Pj^o lege Manilla, 6, "j. Page 2,3 

2. Contracts as distinguished from loans .... 34 

3. Political power of the moneyed class at Rome; comparison 
with East India Company. Plutarch, Lucullus. Cicero, Ep. ad 
Q. Pratrem, I, 1 1, 12 34 

4. Decline of the power of the Equites under the Empire . 36 

CHAPTER IV. 

MATERIAL PROGRESS AND MORAL INDIFFERENCE. 

I. 

Material Progress. 

1. Capital is a very important factor which contributes to material 
progress, but is such progress a good thing? .... 38 

2. Increased power over nature gives the opportunity for increase 
of population, unless the standard of comfort is raised. 77ie State- 
ment of the Malthusian Pj-inciple in Macmillan^ s Magazine, 1884 39 

3. The fact that population overtakes the new ground opened up 
by invention need not make us fear its pressure if there were a pause 
in progress. Marshall, Principles, I, 223 .... 40 

4. Material progress is a good thing (even though it facilitates 
increase of population), because it gives opportunities for intellectual 
and artistic culture. Ratzinger, Volkswirthsschaft, 52 . . 40 

5. The fact that wealth may be misused does not show that 
wealth is a bad thing or that the pursuit of wealth is necessarily 
selfish and wrong 42 

6. But material wealth only gives opportunities; it is under the 
influence of a high ideal that we learn to use these opportunities 
wisely 43 

7. It is well to afford opportunities as widely as possible in the 
present (without sacrificing posterity), but this is a different thing 
from enforcing equal opportunities. ..... 45 

II. 

Capital is an important factor in progress, but it is a very 
dangerous power. 

1. The capitalist as such is indifferent to political, artistic, and 
moral considerations, but looks for pecuniary gain ... 47 

2. The danger of this indifference, even when it is not reckless 47 

3. The reasons for this indifference 48 



Syllabus of the Subject xiii 

CHAPTER V. 

THE CONTROL OF CAPITAL. 
I. 
Different modes of administering capital according to different 
objects to which it is devoted Page ^i 

1. National purposes, and national administration of capital. 
Importance of 

(«) Good judicial administration . . . . '52 

(b^ Security from rebellion and attack . . . .52 

{/) Intercourse with other nations, and consequent necessity to 

be prepared for war, which, whether successful or not, is 

costly 52 

(d) General education 53 

2. Municipal purposes: Sanitation, recreation, and technical 
education 54 

3. Private enterprise and individual management . . 55 

4. Joint Stock Companies ....... 56 

II. 
Are any of these modes of administering capital likely to super- 
sede the others? 57 

1. Apparent increase of national management (^The Progress of 
Socialism in England, in Contemporary Review, 1 879), but there 
are also signs of international and cosmopolitan arrangement in 
economic matters 57 

{a) Postal Union and Bimetallism 57 

If) Economic argument : world as unit and transfer of capital. 

58 

2. Private enterprise and selfish jealousy of State interference. 
Bagehot, Lombard Street, 10. The interest of the State is that of 
the citizens as a body ........ 60 

3. Municipal life and decentralisation. Petty rivalries. Strength 
of national feeling 61 

III. 

Our present social system gives scope for using any one of these 
three methods of administration, wherever it is likely to answer 
better than the others 63 

1. Socialists complain of the waste by competition, and propose 
to substitute organisation 64 

2. But what method of organisation? Any single type is unsuit- 
able for some purpose or other 64 

3. Material wealth gives the opportunity for moral welfare, and 
we cannot count on increased welfare under any arrangements which 
diminish wealth 65 



Syllabus of the Subject 



PART IL 
PRACTICAL QUESTIONS. 



CHAPTER VI. 

THE FORMATION OF CAPITAL. 

I. 

Conditions for the formation of capital . . . Page 66 

1. Social conditions: security is a negative condition. Delisle, 
Operations financieres des Templiers. Mem. Acad. Belles Lettres et 
Inscriptions, XXXIII 67 

2. Personal qualities, are the effective force. The power of post- 
poning enjoyment and of saving varies in different characters and 
among different races. It depends on 

{a) The moral qualities and power of will ... 70 
(j)) Intellectual qualities, imagination . . . -71 
(a) Wish for reserve fund. 

ifi) Wish for an increased income. Of these the former is 

the more important motive, and the possession of a 

reserve is the great class distinction of the present 

day. 

{c) Facilities for helping those to save in whom the disposition 

is weak 73 

3. Opportunities for saving. 

{a) Good harvests, or high profits, or diligence give an oppor- 
tunity. Bohm-Bawerk, A'a/zVa/, II. Abtheil, 130 . 74 
(J)) Suitable commodities for hoarding .... 75 
(a) Precious metals. 
()8) Credit; Co-operative Stores. 

(7) The case of improving properties distinguished. Wine. 

MacCulloch, /'r?;za)>/d'j, 4th Ed. 372. 

{c) It is in the mind of the possessor that the distinction between 

capital and non-capital really lies. Mill, Polit. Econ. 

I, iv. I, and it is in the purpose of the possessor that the 

explanation of the genesis of capital is found . 77 

II. 

The things which capital denotes 78 

1. 'Personal capital,' so called by analogy. But 'skill 'is not a 
fund, nor is it even a possession, except in the case of slaves . 78 



Syllables of the Subject xv 

2. ' National capital,' so called by analogy . . . Page 80 

(a) Is better described as National resources . . . 8l 

(J?) Or if it be used in another sense, as the aggregate of private 

capital together with remunerative public works. . 81 

III. 

Dependence of the State on borrowed capital ... 82 

1. Lack of opportunity and of will to form capital . . 2>Tf 

2. This would present a difficulty in maintaining industry and 
replacing waste if capital were once successfully nationalised . 84 

IV. 
The definition re-considered 84 

1. Analogies discarded 84 

2. The landed interest and the moneyed interest. How far is 
there a justification for the popular distinction? ... 85 

The ordinary landlord's interest in his estate, and purpose 
in purchasing it, differs from that of the ordinary mer- 
chant or manufacturer. Rent is determined by different 
principles from those which explain interest and profit 85 

3. The importance of Mill's principle 87 

CHAPTER VII. 

THE INVESTMENT OF CAPITAL. 
I. 
The moneyed man desires to invest his capital safely so as to pro- 
cure a regular income, which is the extra inducement he obtains for 
consenting to lie out of his money for a time .... 88 

1. Lending money and bargaining for interest ... 89 
(a) Taking security. Orderic Vital, vi. Duchesne, Hist. Norm. 

628 89 

{F) Public and wealthy bodies can borrow on easy terms . 90 
{c) Convenience to the lender 90 

2. Employing money in any enterprise in the hope of profit 
which arises . . ....... 91 

{a) Through combining natural processes. Farming. Mill, 
Political Economy, I, i. I 92 

{h) Through using natural forces to render some industrial or 
commercial process more rapid. Division of labour and 
saving of time and skill ..... 92 

11. 

The flow of capital and the machinery of investment . . 94 

1. According to personal preferences, the * desire of wealth ' will 

take very different forms 94 



xvi Syllabus of the Subject 

(a) Desire of large income — high rate of return . Page 94 
(i5) Desire of increased capital — low price ... 94 
(^) Desire to be fully acquainted with the details of business 95 

2. The transference of capital by means of — • • • 95 
{a) Bankers. Rae, Country Banker, 48 . . '95 
\})) Foreign bills. Ba.geh.ot, ZomOa^'d Street, 21 . . 96 
(^) The Stock Exchange, apparently ' anti-social,' but facilitates 

the flow of capital, and thus subserves a social purpose 
of great importance. Report of Commission on London 
Stock Exchange, ^"1^. (), 10 . . . . -97 

3. The fluidity of capital is not an unmixed good, as . -91 
{a) It gives opportunity for the waste of capital. 

(J?) It appears to intensify the fluctuations of trade. 

III. 

The preference for lending and for borrowing capital, rather than 
employing it personally in enterprise, appears to be increasing, and 
raises important social and ethical questions .... 98 

1. The cosmopolitan influence of capital in breaking down 
nationalism 99 

2. The diminished personal responsibility of the lender for evils 
that arise in connexion with the use made of his money . loo 

CHAPTER VIII. 

CAPITAL IN ACTION. 
I. 
The services of capital to the public loi 

1. As viewed by the Manchester school. Senior, Political Econ- 
omy, 58, Plutarch's Life of Cato, by Langborne, ii. 483 . loi 

2. Discounted by those who have approached the subject from 
the side of the influence of capital on the labourer . . 102 

3. Its service consists in saving time and thus enabling mankind 
to enjoy more in a given time . . . . . .103 

{a) Great works could be done without it, but not so easily, or 
so as to be enjoyed by those who began them. Jevons, 

Theory. 3rd Ed. 234 103 

if) Service of capital illustrated from English history, (a) the 
supply of foreign products, (fi) more rapid work, and 
(7) diminution of risks. Turner, Domestic Architecture, 

I, 97-104 105 

II. 
The destruction of social organisations of a simple kind . 106 

1. Self-sufficing villages 106 

2. Mediaeval cities 107 



Syllables of the Subject xvii 

3, The loss is real, even though the ultimate gain through 
material progress is so great that we do not venture to try to 
check it P(^ge 107 

III. 

Capital renders labour a less important factor in production. 

1. The introduction of machinery. Nicholson, Effects of Ma- 
chinery on Wages 109 

2. The former importance of skilled labour and the industrial 
revolution in England. — Marx, Das Capital, xiii. . . .110 

{a) Lengthening of hours IIO 

lb) Increased strain of work 1 1 1 

(<r) Relative depression of labour, distinguished from absolute 
depression of labourer i n 

IV. 

The tendency of capital to depress labour in England and in 
Rome compared 113 

1. The condition of Roman slaves. — Wallon, Hist, d^esclav, 
dans Vantiq. II, 213, 223. Plutarch, Lives of Cato and Coriolanus 1 1 3 

2. In England the labourer now possesses . . . .114 

{a) Political freedom 114 

(^) Freedom for emigration 1 15 

(J) And has some support for public opinion. This is chiefly 

of active in preventing evil, and it is important in dif- 
fusing better ideals of human life . . . -US 
{d) Trade organisations 118 

3. At the time of the Industrial Revolution the labourer had not 
the same safeguards 119 

(a) No fluidity of labour. Adam Smith, Wealth of Nations y 
I, 10 119 

(J)) Public opinion was callous. Parliamentary History^ 
XXXIV, 1427 119 

(tr) Laws against combination . . . . . 1 20 

{d) But the Poor Law marks the contrast with Roman prac- 
tice even then ....... I2I 

4. How far was the misery of the time due to the greed of private 
capitalists, and how far to the want of adaptability in national 
regulations? 122 

5. The moral forces which have tended to correct the evils which 
accompanied the industrial revolution . . . . .123 

(a) The individuahsm of Locke. Held, Zur socialen Geschichte 
Englands, 45 . . . . . . .123 

(Ji) Christian philanthropy .123 



xviii Syllables of the Subject 

CHAPTER IX. 

THE REPLACEMENT OF CAPITAL. 
I. 
The manner of replacement Page 12^^ 

1. Loaned capital 125 

2. Capital engaged in commercial speculation is replaced . 125 

{a) By the public .126 

{b) By successive transactions — turning over capital . 126 
{c) Rapidity in turning over capital, and extension of busi- 
ness . . ,126 

3. Capital employed in carrying on an industrial process . 128 
(a) The requisites for continuing the process, materials, tools 

and food. — Columella, i. 6, 9 . . . .129 
(J)) The means of hiring labour is a necessary part of capital 

(as defined above) when employed in industry . 129 
(<:) Extension of business — manufacturing on a larger scale 

and at less cost. Marshall, Principles, I, 339 . 133 

11. 
The rate of replacement — bad times and prosperity . -134 

1. Lent capital . . . 134 

2. Commercial capital 134 

3. Industrial capital . . . . . . . .135 

{a) Stagnation and stoppage 135 

{b) The various causes of stagnation; destruction of purchasing 

power 136 

{c) The meaning of a glut, and the possible means of relief 136 
{d) When industry recovers it may probably take somewhat 

different lines from those before . . . -137 

4. The meaning of prosperity and of bad times. Bagehot, Lom- 
bard Street, 122 138 

(«) Rapidity of replacement 138 

{b) Waste of capital from different causes . . .138 
(J) Exhaustion and depression 140 

5. But prosperity, though good in its way, is not the only thing 
to be considered 140 

CHAPTER X. 

THE DIRECTION OF CAPITAL. 
I. 
Fluidity of Capital and of Labour. Bagehot, Economic Studies, 2 1 . 
1. The withdrawal of capital; relatively fixed, and circulating 
capital 141 



Syllabus of the Subject xix 

2. The capitalist's forecast of public demand . . Page 142 

3. Loss of labourers, when there is a change of the direction in 
which capital is used, is minimised by . .... 143 

(a) Opening up new employments. 

(b) Increasing the adaptability of, or 

(c) Facilitating the emigration of labour. 

4. Forecasting demands 144 

5. Doomed industries, and the reluctance of labourers to relinquish 
them. Burnley, Wool and PVoolcombers, i^g . . . . 145 

((2) Hand-looming weaving 145 

(b) Peasant farms — for ordinary agricultural produce . 146 

II. 

Productive and unproductive consumption .... 147 

1. Replacement of capital when there is no change in the char- 
acter of public demand 147 

2. When there is a change in the character of the public de- 
mand 147 

(«) Increase of demand for articles of productive consump- 
tion 148 

((5) Increase of demand for articles of unproductive consump- 
tion. War 149 

(<r) The two directions of change contrasted . . . 149 

3. Rich nations can afford a large amount of unproductive con- 
sumption, without touching on the supply of the requisites of pro- 
duction 150 

{a) The production of more »bjects of wealth is less important 
than the question whether unproductive consumption is 
of a useful or of a useless kind . . . -150 

(3) Kinds of expenditure which are most useful, although un- 
productive 151 



PAJ^T III. 
PERSONAL DUTY. 



CHAPTER XI. 

PERSONAL RESPONSIBILITY. 

Political economy is wrongly charged with being immoral, but it 
commonly claims to be non-mooal, and to follow out tendencies as 
they exist, without pronouncing on right and wrong . .152 

Questions of economic duty were much discussed by the school- 
men, but under different aspects from those they now present 152 



XX Syllabus of the Subject 

The schoolmen tried to detect cases where men, in pursuing gain, 
fell into sin; and the cases they considered were comparatively 
simple, as, P^g^ 153 

I. 

They could generally fix the direct responsibility for wrong doing, 
while we have to consider degrees of responsibihty . -154 

1. Direct and indirect responsibihty. King James I, Works. 
True Law of Free Monarchies 154 

2. This distinction illustrated in the cases of shipwright and 
factory owners 155 

3. Indirect responsibility, and responsibility as citizens for not 
doing our best to cure evils 156 

{a) Government interference is certainly desirable to prevent 
the waste of national resources by the deterioration of 
the population 157 

(b) It is not so obviously a duty to interfere by legislation in 

order to give better opportunities to any class. But 

w'hen this is done it is least likely to fail when it takes 

the form of giving better conditions in connexion with 

• work 158 

{c) The death-rate, as giving an objective test of positive mis- 
chief which should be removed. Making men moral 
by Act of ParHament 159 

4. Indirect responsibility of consumers for causing the evils of 
sweating. How far is an individual consumer bound to inform him- 
self about the conditions of production? The letting of contracts 160 

II. 

1. The schoolmen could isolate single transactions and judge of 
the fairness or unfairness, according to the form of the contract 161 

{a) Remuneration to merchants engaged in carrying was 
allowed, but not to forestallers who tried to get gain at 
the expense of someone else. Rot. Pari. II, 48; III, 254, 
27 Ed. Ill, c. 5, 7 161 

(J?) Transactions which gave opportunity for extortion. En- 
grossing. Secured loans and definite return as distin- 
guished from partnership in a venture with contingent 
gain. Aquinas, Summa 11% II"«, q. 78, a. 2 . 162 

(<r) The meaning of extortion as taking advantage of another's 
need. Charitable loans 164 

2. The revolution in opinion in the sixteenth century legislation 
against an extravagant rate of interest. Malynes, Lex Mercatoria 
II, 10. The need of maxims for personal guidance in the present 
day, as to (a) The direction of the employment of capital, {b) The 
fair return on capital, {c) The right expenditure of income . 165 



Syllabus of the Subject xxi 

CHAPTER XII. 

DUTY IN REGARD TO EMPLOYING CAPITAL. 

There are some kinds of business which it is not wrong to pursue 
diligently, and in regard to which the ethical questions are wholly 
as to the manner of conducting them .... Page 1 68 

And there are kinds of business which are immoral, and are there- 
fore not allowable i68 

I. 

By what standard shall we discriminate? . . . .169 

1. The law and public opinion stigmatise some conduct as wrong, 
but this standard is necessarily low, and does not distinguish what 
is right 169 

2. Hence we need an ideal to show us what to aim at; and a 
man's ideal gives him a conception of what is right for him . 169 

3. This ideal may be expressed in terms of. . . . 171 
(a) External circumstances, when it is a mere dream; for it 

gives no help in regard to the means that must be used 
for introducing it, and there is no security that it could 
maintain itself if it were introduced; or in terms of 171 
(J)) Personal motive, when it gives a direction to our aims, and 
enables us to test each of our actions . . . 1 72 

4. Difference in the attitude we take towards others, according 
as we cherish an external or a personal ideal . . . -173 

II. 

1. Duty with regard to the purpose for which a loan is re- 

quired 173 

(«) The opinion that all loans are immoral may be waived, to 
be discussed in connexion with the terms on which 
loans are made. Benedict XIV, Opera, XV. 592, Vix 

pervenit 173 

(J?) Loans to a government, for an immoral purpose, and for a 
national undertaking that fails. Stanley, In darkest 

Africa 174 

(f) Loans to a private individual, which give scope for ruinous 
extravagance . . . . . . .175 

2. Duty in regard to the choice of an investment. How far is the 
manufacturer to be blamed for the misuse of things he makes? 176 

(a) Manufacture of images 176 

(U) Translations of the Christian Fathers . . •177 

8. Though the evil lies not in the thing, but in the misuse of the 

thing, can the manufacturer disclaim responsibility in a case where 

the article is habitually misused? 177 



xxii Syllabus of the Subject 

(a) Brewing is a useful and honourable calling . I'a^'e 177 

(^) But beer is much misused, and it may be so difficult to take 

precautions against misuse, or to avoid reaping gain 

through misuse, or even so tempting to abet misuse, 

and discourage legislative efforts to check it, that the 

scrupulous man may well prefer to refrain from engaging 

in this business . . . • , . . 1 78 

4. Advantage and difficulty of carrying on such business as a 

state monopoly. Temperance Legislation, Contetuporajy Review, 

1886 180 

III. 

1. But supposing a man desires to clear out of a business about 
which he has conscientious scruples, he must either . . 181 

{a) Wind it up, to his own serious loss and the profit of other 
houses; or 181 

(3) He may sell his interest, and thereby introduce some one 
else to the business which he is himself discarding on 
conscientious grounds 1 81 

2. The former course may be heroic, but it is not obligatory on 
him, and the latter course does not appear to be wrong . .182 

3. How far is it right to enjoy property which was originally 
acquired by means of which the conscience disapproves? . 182 

(a) When that property is inherited . . . .183 

(^) When there is no possibility of restitution, and the property 

was acquired without fraud at first . , .183 

CHAPTER XIII. 

DUTY IN REGARD TO THE RETURN ON CAPITAL. 

The ordinary analysis, interest, insurance, and wages of manage- 
ment is very insufficient for our purpose, and it leaves many forms 
of capital out of account 184 

I. 

1. Wages of management cannot be easily defined, as it is im- 
possible to separate superintendence from other work, but in most 
companies the majority of the partners take no share in the manage- 
ment 184 

2. Superintendence is rewarded on a very liberal scale. High 
salaries, htdust^nal Remuneration Conference Report, 7&2. . 186 

3. We are only concerned with the return an employer gets as 
capitalist, not with his earnings as superintendent . . .186 

II. 

The return on capital is either obtained — . . . .187 
{a) by exercising a right to levy taxation, when it is definite in 



Syllabus of the Subject xxiii 

amount, and certain so long as the bargain is kept, 
or ... o ... . Page 187 
(J)) by catering for the public and reaping gain which varies in 
amount and is contingent on the success of the busi- 
ness 188 

A. 1. To take the case of government loans as typical, the lender 
does a real service, and some pecuniary gain is allowable, but there 
is always a danger of taking extortionate and excessive gain . 188 

2. Remuneration taken, not according to the cost to the lender, 
but according to the need of the borrower, is extortionate . 189 

3. Hence the market rate of interest may mean that many people 
are in great need, and, though a transaction is public, it may not be 
free from extortion 190 

4. Extortion as shown by the exhaustion of a country to meet the 
demands of creditors. Egypt. New Zealand . . .190 

5. Excessive return as compared with the average rate of profit 
on ordinary enterprise 191 

6. The average rate of profit on ordinary enterprise gives an indi- 
cation of what it costs the owner of money to make a loan (Jucfum 
cessans), Aquinas, Summae II*, II"«, q. 62, a. 4, but allowance must 
also be made for greater or less risk {pericuhwi sortis) . .193 

B. 1. The return to the capitalist engaged in business, say to a 
manufacturer, accrues from successive transactions, some of which 
are more, some less successful. There is no regular rate (though we 
may strike an average rate for any period), so we cannot discuss 
what rate is fair, but what division of the produce is fair . 193 

2. The division is between capital and labour, and it is right that 
the capitalist should have some share, since he plays an important 
part in production , . . . . . . . .194 

3. Just division of the gross produce according to the relative 
importance of each factor in production. The relative depression of 
labour and the decrease in the proportion of the labourer's share of 
the produce. The increasing separation between rich and poor 194 

4. Division as practically made — 

(«) Outlay on plant and buildings 196 

(<5) Outlay on hiring labour 196 

(r) The difference between this outlay and the value of the 

product is profit 196 

(i) Profit must afford (on an average) the necessary 
remuneration which will induce the capitalist to con- 
tinue in business, and which is roughly indicated in 
any country by the return obtained on capital invested 

in land 197 

Grave loss to labourers if capital does not obtain 
this remuneration and the business is wound up . 197 



xxiv Syllabus of the Subject 

(ii) Profit will also afford from time to time more or less 
additional or exceptional gain. Attempts to secure 
exceptional profits by agreement. Rings. Pools. 
Edwardes' on Trusts, Consular Reports, July, 1890. 
C. 5896-32 Page 198 

5. Schemes by which the labourer may obtain a share in the 
necessary remuneration and especially the exceptional profits of 
capital 199 

{a) Industrial partnerships 199 

(Ji) Bonus to labour. Sedley Taylor, Profit Sharing . 199 
{c) Sliding scales and lists. Price, Industrial Peace . 200 

6. Attempts to reduce the outlay under pressure of competition, 
and especially the outlay on labour 200 

{a) Danger of grinding down the labourer, and of absolute 
(as well as relative) depression .... 201 

{]}) Relative depression is compatible with absolute improve- 
ment; but has this occurred as a matter of fact, or has 
capital persistently ground down labour? . .201 

(f) There is no evidence of absolute depression since the 
fifteenth century, whether we consider the condition of 
the employed or the numbers and condition of the 
unemployed. Growth of English Industry, 346. Denton, 
Fifteenth Century, 103. Hunter, Hallamshire, 148 204 

{d) That the standard of comfort has not been raised more is 
fully accounted for when we see how population has 
increased 205 

{e) Still there is a real danger of grinding down the labourer, 
and it is a matter of material importance to guard 
against any symptoms of it 206 

III. 

1. The varying rates of necessary remuneration and the flow of 
capital to different countries 207 

2. Difference in the rate of moderate interest in old and in new 
countries 208 

3. Risk of accidental extortion. Mortgage. Government loans 

208 

4. The mass of public debts and increasing burden of interest. 
Danger of exhausting a country. Public debts. Wilson, World in 
Pawn, Fortnightly Review, '^'Y.^sN 209 

5. While public opinion may support a man in exercising his 
legal rights, the scrupulous man will endeavour to avoid gain which 
accrues through the exhaustion of a country or by grinding down 
the labourers 210 



Syitabiis of the Subject xxv 

CHAPTER XIV. 

THE ENJOYMENT OF WEALTH. 

I. 

Right and wrong in enjoyment. Devas, Groundwork of Economics, 
454 Page 212 

1. The prospective enjoyment of wealth underlies the whole sub- 
ject of the means of procuring wealth . . . . .212 

2. The duty of diligence in work involves the recognition of en- 
joyment in rest and recreation as right . . . . .213 

3. While enjoyment that unfits for work is dissipation and is 
wrong 213 

4. Further, enjoyment that facilitates any improvement of mind 
or body is good in its way 214 

5. Also enjoyment that promotes friendly intercourse . .215 

II. 

The neglect of opportunities and waste of wealth . . 215 

1. Setting class against class 215 

2. Getting his money's worth 216 

III. 
The sacrifice of enjoyment, and its bearing on material progress 

216 

1. In charity 217 

2, By self- discipline , , 218 



PART I. 
SOCIAL PROBLEMS. 



CHAPTER I. 
Political Economy with Assumptions and without. 

I. Assumptions made by Adam. Smitli and others. 

1. Adam Smith's greatness as an economist is very 
striking when we compare the Wealth of Natio7is with the 
works of his predecessors, and see what he did. It is still 
more striking when we compare his book with the writings 
of those who have followed him, and see how little they 
have accomplished in the way of amplifying his work, and 
supplying what he left undone. We may recognise the 
importance of Malthus, Ricardo, and Jevons ; they have 
given us fresh light on particular doctrines, as to population 
or rent or value ; but the fact remains that the Wealth of 
Nations is not only read as a classic, but is still used as a 
text book of the whole subject. 

Adam Smith left his predecessors behind, because he gave 
a new turn to the old enquiries. The statesmen and politi- 
cians of different nations had been each trying to work out a 
practical problem ; each had enquired how to develop the 
resources of his own country in such fashion as to promote 
the power of that state. The problem had taken one shape 
in Germany with its petty principalities, and administrative 
science. It had taken another form in France with its grreat 



"1 Political Ecofio7ny with Assumptions and without [Ch. 1. 

agricultural resources, and physiocratic doctrine. It had 
taken yet another in England with its facilities for commerce, 
and mercantile system. Adam Smith stated the matter in a 
more general form than any of these writers had done by 
concentrating attention on wealth, — something which was 
required in all these diiferent countries alike. The first books 
of his great work really deal with a topic which might be 
regarded as of common interest to all nations ; it is only in 
the last books that questions of policy, of using the wealth 
for the support of the state, come into prominence. The old 
writers began with power and worked back to the sinews of 
power; they were politicians first, financiers next, and 
economists last of all. Adam Smith felt that wealth could 
be dealt with apart from considerations of political power ; he 
treated the subject in a more abstract fashion, and also in 
such a manner that his results were of more general appli- 
cation. He attacked the mercantilists chiefly, but he 
superseded the German school and the physiocrats as well. 
So much for what he did. 

2. But he left much undone, for he classified the diiferent 
topics with which he dealt in a rough and ready fashion ; he 
never stated precisely what he assumed, and he took the 
phenomena of society as the ordinary superficial observer 
recognised them. It was clear to him that even the poor in 
civilised countries ' enjoy a greater share of the necessaries 
and conveniences of life than it is possible for any savage to 
acquire.' He finds that the chief reason for this lies in the 
larger ' proportion of useful labour,' and that the large 
number of useful labourers is due to the ' quantity of capital 
stock which is employed in setting them to work.' But he 
simply took these factors, as they were familiarly known in 
England in the eighteenth century, and traced out their 
working; he hardly set himself to resolve them into their 
elements, physical and personal. He never explicitly re- 
cognises that the free labourer is the product of a highly 
complicated civilisation, and that capital is only found in 
small quantities, if at all, among savage or backward peoples. 

Adam Smith might have tried to trace the genesis of both 



Assumptions ??tade by Mill 3 

of these factors in the production of wealth; but for his 
immediate object it was not necessary to do so. He was 
writing a book for the English pubHc in the hope of 
accomplishing a practical reform, and in that object he 
succeeded beyond his highest expectations. Had he aimed 
at mere formal correctness he might never have caught 
public attention, and he exercised a wise discretion in 
avoiding scholastic precision. Perhaps the very greatness 
of his success has prevented others from thoroughly inves- 
tigating the facts and principles which he assumed ; his 
followers have done much in re-stating truths for modern 
society in better terms and with greater precision, but they 
have been inclined to imitate him by accepting, as normal, 
phenomena which only show themselves in a highly com- 
plicated society. 

Modern economists like Mill assume the 'facts of human 
nature and of the physical world,' and postulate them as the 
basis of the science ; but after all this basis is not secure, 
for the facts of human nature are continually changing. It is 
not very convenient to fix on any one type of character to the 
exclusion of the rest, at least for enquiries that have to do 
with distant places or distant times. If we take the average 
nineteenth century Englishman, — and how shall we strike 
that average? — but if we take him as typical, it will not be 
easy to apply any of the results we reach to a country 
inhabited by Hindus, for we do not know how to make the 
necessary corrections. There is a similar difficulty even in 
drawing on our modern experience for explanations of 
industrial changes in by-gone days in England. Human 
nature is very complicated and is constantly changing, and 
we seem to narrow the range of our enquiry unnecessarily if 
we confine our attention to a single type. How and when 
are we to deal with the other types ? 

It might appear at all events that we may assume the 
facts of the physical world as constant ; the changes in the 
material universe are so slow that the phenomena may be 
regarded as permanent when compared with the duration of 
human life on the globe. But this is scarcely so ; for 



4 Political Economy with Assumptions and without [Ch. i. 

economic purposes the consideration which is important is 
generally speaking, not what physical nature is, but how far 
it is understood. As men increase in their knowledge of phy- 
sical facts and in their power over them, the industrial and 
commercial character of the physical world wears a different 
aspect. There is no range of acquaintance with physical 
nature and no definite type of human character which 
remains unmodified for many generations in any period of 
progress, and it is inconvenient to have to assume some 
definite range and definite type when we are discussing the 
causes and the course of material progress. 



II. Difficulty of Stating and of Working from these 
Assumptions. 

1. That this is a real difficulty might be seen more clearly 
if we were to review the various attempts that economists 
have made to state the precise assumptions they are 'making. 
Nothing can be of greater importance than that the funda- 
mental assumptions, the very basis of all subsequent 
discussion, should be clearly stated; but the difficulty of 
doing this well appears to be insuperable. Thus it is 
common for economists to assume free competition, and Mill 
seems to hold that economic phenomena cannot be scienti- 
fically investigated without the aid of this assumption; but 
there is very great difficulty in stating precisely what it 
means. Some writers scarcely attempt to define it, while 
others would tell us that the phrase ' free competition ' 
describes a state of society when every man pursues ' a 
course which, without entering into combination with others, 
he has deliberately selected as that which is likely to be of 
the greatest material advantage to himself and his family.' 
The assumption of free competition in this form may be 
fairly convenient for dealing with many commercial questions, 
but it is ludicrously unsatisfactory as a means of approaching 
the examination of the struggle between organised labour and 
capital. Yet it would be very difficult to restate the definition 
so as to include competing associations and corporations as 



Assiwiptions unconsciously retained 5 

well as competing individuals. The consideration of this single 
instance may show that while it is often useful to proceed by 
the help of assumptions, there is a double difficulty with 
which we have to contend ; on the one hand it is very hard 
to think out the particular hypothesis we shall assume, and 
on the other it is very hard to state precisely what we are 
taking for granted. 

2. There is, however, another point of view from which we 
can see the difficulties which attend this method of procedure. 
Unless we know what we have assumed and can state it quite 
clearly, we may fail to divest ourselves of these presupposi- 
tions, even when we try to do so. Thus, as has been noticed 
above, Adam Smith assumed existing social arrangements 
and classes — landlords, capitalists and labourers — in his 
treatise, and other economists have followed him in this; 
even in cases where the assumption appears to be laid aside, 
it is still implicitly present. Economists, when describing 
the growth of industry or commerce, are not always ready to 
face the real problem and examine the change from savagery 
to civilisation as it has actually taken place in any part of the 
world; they appeal instead to the probable experience of a 
Robinson Crusoe, — a man with all the industrial habits and 
modes of thinkings of a modern Englishman. These fancy 
illustrations tell us at best what a modern Englishman would 
try to do if he found himself in an isolated position, or when 
he came in friendly contact with savages ; but they do not 
throw any light on the question as to the steps by which 
a primitive people, with no ideas of exchange and no habits 
of saving, emerges from barbarism. So long as the termi- 
nology of economics is framed on a rough and ready scheme 
drawn from the phenomena of modern society, our treatment 
of history is necessarily superficial, because, by the language 
we use, we read into primitive times the very habits and 
practices of which we profess to trace the origin and growth. 

A similar defect may even be detected in the writings of 
some of those who have ranged themselves in opposition to 
the existing order, and desire to introduce something very 
different. The Labour and Capital of which they write are 



6 Political Economy with Assumptions and without [Ch. I. 

still Labour and Capital as known in modern society ; the 
communist would reconstruct all the conditions of life, but 
he appears to assume that Labour could be directed and 
controlled, in these new circumstances, as effectively or more 
effectively than it is at present. The motives to work, the 
manner of work, the training for work, would all be altered ; 
it is a complicated speculation to guess how Labour would 
be affected by these changes. Could society count upon 
laborious drudgery being regularly done if effect were given 
to the great principle of the gratuitousness of service? It is 
a large assumption, (whether it is a justifiable one or not), 
and it sometimes seems to creep in by mere implication, 
when language framed in accordance with the present state, 
is used to describe the possible economic conditions in some 
future Utopia. Just as some economists are apt to be super- 
ficial when they write of the past, because their language 
makes use of the very things they profess to explain, so 
other economists are apt to be superficial when they write of 
the future because their language implies the retention, 
under changed circumstances, of much that might have 
passed away. 

3. There is a further inconvenience in basing the whole of 
our scientific treatment on some particular assumption about 
human nature. In so far as the assumption fails us we are 
left without any help for conducting a reasoned and scientific 
investigation. It may be the most convenient, or even the 
only possible, mode for treating certain modern problems, 
when we can be sure that human beings will continue to be 
the same for all practical purposes. For short periods, 
during which there is no modification in human habits, it 
may answer admirably; but where human motives change 
in character, or human habits are altered, our fundamental 
assumption becomes untrue, and we have no scientific means 
of correcting our results, so as to make them apply to the 
changed condition. The inadequacy of ordinary economic 
reasoning has been brought to light during the last decade, 
when attention has been increasingly directed to social 
problems which force us to recognise the fact that there have 



Gradual chatiges m Htunan Nature 7 

been and may be fundamental changes in human nature 
itself. There is at present a wide-spread dissatisfaction 
with the existing social order, and schemes for mending it, 
or even for ending it, are eagerly welcomed in many quarters. 
There is also an increasing interest in the social life of bygone 
days, or of primitive peoples, and the diffusion of ' village 
communities,' whether free or not, and of gilds of different 
types, has impressed the popular imagination ; but for 
describing the practice of these bodies in detail our ordinary 
economic terminology does not serve satisfactorily. There 
is another reason for pushing our examination a little 
further than was done by Adam Smith and has been ac- 
cepted by his successors. In taking modern English society 
as normal they found a plain, but not high, view of the rela- 
tions of morality to commerce. They found that some kinds 
of conduct were prohibited by law, and that certain actions 
were commonly regarded as discreditable breaches of business 
etiquette, but they did not raise questions of right and wrong 
within these wide limits. Those who hope to elevate the 
public standard, to distinguish fairness from unfairness in 
different transactions, are forced to try and find distinctions 
which are commonly ignored — that is to say, they must try 
to analyse more minutely. 

The rough and ready acceptance of modern society as 
normal, and of its phenomena as typical, serves for the 
discussion of practical fiscal questions in the present or 
immediate future. There is an immense number of prob- 
lems connected with currency and finance and tariffs which 
can be conveniently dealt with on the ordinary assumptions ; 
but there are others, and these for the most part are wider 
and more important questions, which can only be treated 
satisfactorily when they are examined in another light. 
Those who are anxious to understand the history of the past, 
or to raise the tone of commercial morality, or to forecast 
the course of society, will not be satisfied to look at all 
economic questions through the medium^ of modern society, 
or with the aid of any assumption about the dominant factors 
in human nature. 



8 Political Economy with Assmnptions ajid without [Ch. I. 

Since economic science assumes a certain type of human 
nature, its results simply become irrelevant if we wish to 
understand a long period of the past, during which human 
nature has been altering, or to forecast a future, in which, 
as we hope, human nature will be different from what it is 
now. The principles that economists have formulated, the 
terms they use, cannot be applied directly and easily to 
the changed conditions; in order to apply them at all we 
should have to enter on a diiferent kind of enquiry, — to 
analyse human nature more carefully, to state how far e. g. 
the nature of the Hindu in a village community corresponds 
to, and how far it differs from, the type of human nature we 
have assumed, and to see what probabilities there are that it 
can be modified to any great extent in a given time. It is 
only after some such investigation that we can attempt to 
apply the principles of economic science in regions where 
our fundamental assumptions about human nature do not 
hold good. Unless there is a serious effort to do something 
of the sort, our treatment of the widest and deepest economic 
problems must be entirely haphazard, as it will depend on 
the fashion in which our sentiments or our fancies induce 
us to discard, or to retain, the conclusions which had been 
accurately worked out for a different state of affairs. A 
pessimist writer will take one view, an optimist another ; 
there can be no argument between them, because neither 
has any means of giving a rational justification for his con- 
viction. 

in. Empirical and Hypothetical Treatment compared. 

1. In order then to examine social questions in the past, 
or to forecast the future, or to see our way about possible 
improvements, we must enter on a purely empirical in- 
vestigation ; we must lay aside for the present, all postulates 
about labour and capital, all hypotheses about free compe- 
tition and formulas of supply and demand. We only require 
to know the field w.e are going to examine, and to be very 
careful about the terms in which we record our investigations. 
The field of enquiry includes the manner in which human 



Human Energy 9 

beings have used the resources at their command to satisfy 
their needs ; in the progress of society these needs have 
been constantly changing, and the available resources have 
also changed. But the motive power in these changes has 
not lain, directly at all events, in the circumstances outside 
man, but in man himself. He has overcome nature ; he has 
sometimes adapted himself to his environment, or he has 
more often adapted his environment to himself, and made it 
more comfortable or more productive. By observing, as 
carefully as possible, the forces in human nature which have 
been exerted to satisfy human wants, we shall get a view of 
the means by which men have maintained themselves, and 
of the means by which they have, at times, advanced to a 
new stage of progress. To put the matter in this way is not 
to neglect the assistance which is given by physical nature 
in supplying products and forces to man, but it is to take 
these physical factors into account in the right way ; by 
noting how man's skill enables him to apply them to his 
needs. The thorough examination of human nature, human 
skill and human motives, on purely empirical lines would 
give us, if it could be successfully attempted, the completest 
account of our complicated society in the present ; it would 
give us too the data by which we might enter on an intelligent 
comparison with the past, or frame a rational forecast for 
the future. 

2. At the same time, though such empirical investigation 
is most necessary, especially with a view to historical and 
social enquiries, it would be an error to suppose that it can 
enable us to dispense with the methods which have been 
usually adopted by economists in discussing the industrial 
and commercial phenomena of the present day. Just be- 
cause our existing society is so complex, the attempt to 
proceed empirically would be tedious and could never be 
complete. By assuming certain conditions which are prac- 
tically true at present, and neglecting the minor disturbances, 
we may fix our attention on what is really important here 
and now. We thus get a convenient method of statement, 
and that in itself is the first condition for solving a problem. 



lo Political Econojny with Asstwiptions and without [Ch. I. 

The volume of commercial transactions in the present day- 
is so great, the machinery by which they are carried on is 
so complicated and so delicate, that we may welcome any 
method by which the questions to be considered are sim- 
plified. The hypothetical method, which assumes certain 
facts of human nature, and works on the basis of this 
assumption, is most convenient for discussing all matters of 
currency and banking, all questions connected with com- 
merce or tariffs or the Stock Exchange. The empirical 
enquiry, on the other hand, is the most convenient for dealing 
with the distant past or the probable future ; even if we 
merely rely on it in order to enable us to correct our hypo- 
theses, and adjust results we have already reached, and 
restate them so as to apply in other circumstances. There 
are topics in regard to which there may be much doubt as 
to which of the two methods is the more convenient ; such are 
questions about labour and wages in the immediate future. 

These two modes of treatment, then, are not inconsistent 
and need not be opposed ; but it is desirable to distinguish 
them, so that we may not flounder helplessly between them, 
and thus fail to know the precise character of the results we 
have attained. It is not easy always to distinguish them ; they 
are closely connected, and neither can claim to occupy the 
whole field of economic enquiry to the exclusion of the other. 
The empirical enquirer, who would dispense with the assistance 
of hypotheses, undertakes unnecessary drudgery in intricate 
paths, in which he may easily lose his way. The economist 
who betrays any jealousy of the progress of empirical enquiry, 
as likely to do serious damage to the science, is self-con- 
demned. After all, neither method of enquiry can be pursued 
entirely apart from the other ; we cannot without empirical 
enquiry reach the facts of human nature and of the phy- 
sical world which Mill assumes ; and the tentative use of 
hypotheses is an ordinary instrument in any empirical 
investigation. Still, the two modes of treating economic 
phenomena, though not mutually exclusive, and though 
neither supersedes the use of the other, are yet so far dis- 
tinct that it may be convenient to contrast them as to their 



Mechanics and Economics li 

general modes of working, and the nature of the results 
obtained. 

3. The hypothetical mode of treatment is conducted on 
the model which is given by mechanics. Mechanics ex- 
amines the behaviour of a body moving under its own 
momentum, and acted on by no force ; Economics examines 
the behaviour of a man actuated by self-interest and un- 
influenced by external considerations. The science states 
how molecules or men regularly act under certain conditions, 
and thus gives us the law of the phenomena. Economics 
may then proceed to consider how various kinds of external 
force interfere with the phenomena and modify the results. 
To do this, recourse is still had to the methods of Mechanics. 
A common denominator is taken of the widest kind, so that 
all the various forces in human nature can be expressed quan- 
titatively in similar terms ; some writers prefer to speak of 
greater or lesser quantities of motive, and some of greater or 
lesser quantities of the utility which attracts ; but they are 
alike in this, that the whole method of conducting the en- 
quiry is based on Mechanics, and the favourite conceptions 
which are applied to economic phenomena, such as equili- 
brium, are borrowed from mechanical science. 

{a) The advantage of this method, Hes in the convenience 
it offers for carrying on a difficult enquiry about the com- 
plicated affairs of the present day; but it is not without 
defect, so that it may occasionally be supplemented with 
advantage. It states what holds good upon a given as- 
sumption ; what is thus formulated is a universal proposition 
which holds good anywhere and everywhere, so long as the 
assumed conditions are present. It is valid for all time and 
for distant planets, and indeed for any possible place that we 
can ever think about, — because it derives its validity from the 
very nature of our thinking faculty ; given the condition, the 
consequent is necessary. But although it has this hypo- 
thetical validity universally, it may not be actually true in 
any single place, or at any known time ; it will never be 
true unless the assumed condition is present. On the other 
hand, though empirical investigation cannot give us econo- 



12 Political Economy with Assumptions and without [Ch. I. 

mic laws which are vahd in other planets, it can help us to 
learn what is actually occurring in the world where we live. 

{b) Again, economists who have devoted themselves to 
hypothetical enquiries find that they can proceed without any 
detailed analysis of human motives. The various objects oi 
human desire are sufficiently represented for their purpose 
by greater or less quantities of utility, and we find that they 
do not lay any stress on the need for analysing different 
kinds of motive or for using accurate terminology. There is 
even a disposition not to define the most important terms ; 
it is taken for granted that everybody knows the sort of 
thing to which they apply, and that no greater precision can 
be hoped for than is attained in ordinary conversation. 
Thus we are told in common primers that capital cannot be 
separated from non-capital by ' a precise dividing line ' and 
that ' productive labour cannot be divided off by a clearly 
dividing line from unproductive.' But accuracy in the use 
of terms is of the first importance in an empirical investi- 
gation ; we must know what a name means, or we cannot 
advance with a discussion of the things to which it applies. 
In economics it is indeed comparatively easy to define the 
names, the difficulty generally lies in the fact that our de- 
fective powers of observation may render it hard for us 
to know at once on which side of our precisely drawn line 
an imperfectly understood object ought to be placed. 

{c) In investigating movement within certain conditions it 
is natural to apply mechanical analogies, as they may give 
the most convenient method of summarising the facts we 
wish to explain. Such conceptions as equilibrium or the 
equation of supply and demand offer convenient modes 
of exhibiting the influences which determine prices at any 
one moment on the Stock Exchange, and they can be applied 
to show the ordinary price of corn which ruled during a long 
period, like a century. But for the most part they are 
methods of stating, or it may be of illustrating, economic 
phenomena, rather than methods of explaining the reasons 
of the changes which have actually taken place. To apply 
the conception of equilibrium we must break up the course 



Both methods of treatment ^tseflll 13 

of events into longer or shorter periods ; and if we wish to 
follow out a continuous change, whether of progress or decay, 
it is generally more convenient to discard the analogies and 
conceptions drawn from elementary mechanics ; growth 
and decay and other ideas borrowed from organic life are 
more likely to serve our purpose and to prove convenient 
phraseology. 

4. Since empirical investigation of economic phenomena 
discards the assumptions with which Mill and many of the 
other followers of Adam Smith have started, we must, in 
pursuing it, forego the convenient aid which we may derive 
by drawing mechanical analogies, and we must therefore 
force ourselves to carry out our analysis as fully as may 
be with the use of ordinary language ; and we must be 
careful to employ our terms with precision. Above all, 
we cannot hope to attain results which are universally valid, 
but only statements which are true to the facts of actual life, 
over a larger or smaller area, and for a longer or shorter 
period, on the globe we inhabit. In so far as we notice the 
operation of a motive — like the wish to have a reserve fund 
— which shows itself in early races, and which is maintained 
in a highly developed form among civilised men, we may 
perhaps attain to a statement which is true very widely and 
which is therefore very important ; in other cases we may 
have to notice the influence of passing whims of fashion. 



IV. Bespective Advantages of the Two Methods of Study. 

It has seemed wise to endeavour to distinguish thus 
clearly the method which is adopted in most treatises on 
economic science from that which will be pursued in the 
following pages. Each is good in its own place. However 
highly we rate the importance of hypothetical enquiries, we 
may yet feel that they require to be supplemented by 
empirical studies. So too, while entering on an empirical 
investigation, I may once more reiterate my repudiation 
of the view that this is the only legitimate mode of economic 
enquiry and that hypothetical statements are foolishness. 



14 Political Econo7ny with Assimiptiotis and without [Ch. I, 

By the assumption of free competition we simplify many 
problems and are able to examine affairs of present im- 
portance, which could hardly be discussed at all, unless they 
were artificially isolated so that we may observe them better ; 
it affords a most valuable means of investigation with which 
we cannot dispense. It supplies us with terms in which to 
describe phenomena we observe, and general propositions 
with which to compare our empirical conclusions. For all 
that however, by adhering rigidly to this assumption we 
condemn ourselves to think within a limited range ; it 
may be desirable to try and break through this charmed 
circle if we can. We must certainly do so if we wanted 
to review the whole industrial life of our own time, to 
see wherein it differs from that of bygone ages ; and how 
it may be improved ; but this would be a very large under- 
taking. It will more than suffice for the present to take 
one factor, Capital, and examine it more closely, as it is 
now, and see how it differs from the corresponding factors 
in bygone days. When we have examined it thus we shall 
be able to look at questions connected with the remuneration 
of capital and the duties of the capitalist in a new Hght, or 
at least in light derived from sources that have been too 
much neglected. 

In so far as the attempt to examine modern capital more 
closely, and to name the personal elements which are con- 
cerned with it, is at all successful, in so far we shall get 
results that are more widely true than the statements of 
modern . economists who have adopted such assumptions as 
those of Adam Smith or Mill. These statements have 
of course hypothetical validity of a universal character ; but 
they do not hold good as convenient descriptions of the 
actual course of industrial affairs, except for a few countries 
and for these countries in comparatively recent times. They 
assume free competition and trace everything to the indivi- 
dual desire of wealth-in-general as an ultimate explanation ; 
but there is only a small area of human life on this globe in 
which the individual ' desire of wealth ' has free scope 
enough to make itself felt as a dominant force. When we 



Elefneiitary Human Desires 15 

take account of a variety of human motives in the present 
day, and note the particular characters of each, we shall find 
that some of them are forces which have been effective from 
very early times and over wide areas, e. g. the desire not of 
wealth-in-general, but of having a hoard. In so far as we 
can succeed in tracing out the influence of some very ele- 
mentary human desire which shows itself in very primitive 
races, who have very little knowledge of nature or power of 
controlling it, we shall reach an economic principle which 
has held good in the most different times and places as an 
explanation of actual life there and then. The desire of 
wealth-in-general is a complicated product that shows itself 
among men in highly civilised society ; we must look for the 
simpler, because more particular, motives which are combined 
in it now, and which have operated in earlier social conditions 
as well. 



CHAPTER 11. 

Industry without Capital. 

I. Money and Capital. 

1. A man's capital, as we talk about it in the present day, 
is understood to be a fund of wealth from which he expects 
to get an income. This is what is meant by the word in 
ordinary conversation, and it will serve for the present as 
a definition of the thing. The precise force of the various 
terms in this phrase will be brought out in subsequent dis- 
cussion, at present it may suffice to point out that this income 
will be received in money and pass through the owner's ac- 
count at the bankers ; there is probably no part, or only a 
very small part, which is paid to him in kind. The fund 
itself at any time consists of property of different sorts ; but 
it is constantly estimated in terms of money, and this esti- 
mate states the amount of money which could be obtained 
for it at that time. It is ordinarily assumed that a man can 
realise his capital in money, and subsequently reinvest it in 
some other property. He may indeed sink it in land; but 
when he does, common opinion rightly regards him not as 
a capitalist but as a landlord, for his wealth no longer exists 
as capital, since it is merged in an estate and cannot be 
realised apart from that estate (p. 85). The wisdom of the 
capitalist lies in making judicious investments, in weeding his 
investments from time to time, or holding an improving 
property. A man's whole capital will very rarely actually be 
in the form of money, but it is always potential money ; and 
many judicious capitalists dislike investments in which their 



No Money, no Capital 17 

money is so locked up that they may be unable to realise it 
when they desire to do so. This is one of the reasons why 
so many private firms have been reconstructed as joint stock 
companies ; the partners can more easily withdraw a portion 
of the capital, if, e.g. it is necessary to divide the estate 
among heirs. Hence capital, as we habitually think of it, is 
a fund of wealth, realisable in money, and from which the 
owner expects to derive a money income. 

2. From all this it follows that capital, as we speak of it 
to-day, can only exist where money is generally known and 
used, or, to put it in another way, where the exchange of 
wealth is regularly practised and men are familiar with the 
use of a medium of exchange. You may have a hoard of 
goods, but unless you can employ it in the expectation of 
income, it is not capital, properly so called. The Bombay 
rayat, who has a store of corn (beyond what he needs for 
seed), who cannot sell it, but holds it against a famine year, 
does not expect to get any income from it ; it is a reserve 
fund rather than capital, it is wealth which is lying idle. If 
those who merely keep their hoards as a reserve and do not 
use them are not capitalists, it is still more obvious that those 
who do not even form hoards at all but merely live from hand 
to mouth have no capital. In any state of society where 
everybody lives from hand to mouth there is no capital ; 
a tribe that lives solely by hunting wild animals or fishing, 
and which has no store on which it can fall back, has no 
fund of wealth and therefore has no capital. 

3. While it thus appears that there are many peoples who 
have no capital it is also true that there are tribes which con- 
tinue to live in this hand to mouth fashion, and manage on 
the whole to obtain supplies, and satisfy their needs from 
day to day ; it is also true that there are many villages which 
are almost entirely isolated, which do not rely on trade for 
the supply of any of their regular wants, and which yet 
maintain themselves in moderate comfort from year to year ; 
they produce all that is necessary for subsistence year after 
year. They may be very industrious, and practise all sorts 
of useful arts, but they have not reached the social conditions 



1 8 Industry without Capital [Ch. II. 

which are implied in the very nature of capital. But if tribes 
of hunters, or self-sufficing villages, procure what is needed 
to satisfy their wants without capital, it is perfectly obvious 
that capital, as we know it, is not a requisite of production 
in all times and in all places. To say that capital is a re- 
quisite for production in a capitalistic era is a mere truism ; 
and since modern society is capitalistic it is true to say that 
capital is a requisite of production in modern society ; but 
the fact that capital is necessary for carrying on industry as 
it is organised in Europe in modern times does not show 
that capital is necessary for production at all times and in 
all places. 

4. ' But surely,' it may be said, ' industry could not go on 
unless there were something similar to capital in these primi- 
tive circumstances, something that discharged similar func- 
tions.' Very likely it could not ; we shall be better able to 
discuss the matter if we can arrive at a clear view as to the 
precise function that capital performs; in the meantime it 
may suffice to point out that a thing may be similar and not 
the same ; the very question we want to discuss is just this — 
How far are they similar? If we begin by calling them by 
the same name, we are begging the whole question, and as- 
suming that they are so closely similar, that we may use the 
same term for both. Birds fly and bats fly and so do flying 
fish and butterflies, we may say that they have all got wings 
and leave the matter there ; but there are great differences 
between their wings, as birds fly with their arms and bats 
with their fingers; the wings of the others have even less 
resemblance to the limb with which the bird flies ; there is 
a certain likeness between them all, but when we think for 
a moment we see that the resemblance is very slight. The 
use of the word wings suffices for popular talk and for poetry, 
but we have to discard it if we wish for scientific accuracy. 
It is true that the tribes of hunters possess certain imple- 
ments, and that agricultural villages have not only imple- 
ments but a store of food ; but here the likeness to capital 
ends. To call these implements and stores capital may serve 
in travellers' tales, but it does not conduce to clearness of 



Primitive Implements and Stores 19 

thought and accuracy of language. There is a constant 
danger of expanding the application of a term by analogy 
till it loses all definite signification and becomes a mere 
metaphor. No one would seriously contend that the ' Flying 
Scotchman' must have wings, or that it goes on 'the wings 
of the wind ' ; but economists have sometimes strained ana- 
logies, and used words in loose senses until they have fallen 
into strange absurdities. 

5. There is much greater danger of confusion, if we allow 
ourselves to take liberties with economic terms, than there 
can be in pursuing any branch of natural science. The dis- 
tinction between the wing of a bird and that of a bat is clearly 
marked when once it is recognised ; but the implements and 
stores of a primitive people not only correspond to the capital 
of modern society, but they may also be said to be unde- 
veloped forms which give rise to capital as it is used in 
modern industry; they are related, somewhat as the cater- 
pillar and the moth. Capital supersedes the primitive ar- 
rangements for industry and takes its place ; it does this 
very gradually. Just because the process is slow and con- 
tinuous we need to have clear terminology in order that we 
may be able to discriminate the stages in the process. The 
caterpillar and the butterfly have one continuous life, but that 
is no reason for saying that the caterpillar is a butterfly and 
calling them both by the same name. The industrial life of 
the English people has been continuous from the time when 
their separate villages were each practically self-sufficing, but 
that is no reason for saying that the requisites of production 
now were the requisites of production then, and calling 
them by the same names. Both for the sake of under- 
standing the nature of capital, and in order to trace the 
development of society, we shall do well to avoid the vague 
use of terms and to try and discriminate the real differences 
between these early societies and our own. 

II. Physical Circumstances and Personal Qualities. 

1. There are two distinct points of view from which we 
may look at the diff'erences between primitive and civilised 



20 Industry without Capital [Ch. II, 

society, and therefore two distinct sets of phrases and terms 
by which we may describe them, or different sets of elements 
into whicli we may resolve the forces that work in them. 
Man and his environment act and react on one another ; we 
may fix our attention on man's physical surroundings, and 
describe the changes in the material conditions of his life ; 
or we may attend chiefly to man and describe the changes 
in his powers of overcoming nature and improving his cir- 
cumstances. We are apt to vary, in a somewhat haphazard 
fashion, between these modes of statement ; sometimes to 
use one set of phrases and sometimes another, but the state 
of affairs to be described is always affected by both elements. 
Travellers who write about the North American Indians and 
other such tribes are fond of laying stress on their improvi- 
dence — a personal quality. They have abundant food one 
day, but they never attempt to save it, and if they have bad 
luck they may soon be reduced to the direst straits. But 
though the improvidence is so noticeable, it may also be said 
that they hardly have any suitable materials for hoarding; 
that the flesh on which they live is not easy to preserve, and 
that the whole physical circumstances of their life make it 
diflicult for them to be very provident. 

In regard to agricultural communities we may note 
something similar ; they do not exchange their goods regu- 
larly and habitually, and we may say that they have no roads 
or other means of communication and that physical circum- 
stances are against them. On the other hand it appears that 
they have no great wish to break down these obstacles and 
have not enterprise enough to try and open up trade ; they 
would regard it as a doubtful boon. 

2. Now though these physical and personal traits appear 
to be distinct, they are after all very closely related and are 
separate vi^ays of stating the matter. Certain physical cir- 
cumstances are a limit to certain men, because they have not 
the wish or the wit to overcome them — a personal defect; to 
other men with more personal resources these same physical 
obstacles cease to be an insuperable barrier. As human 
skill increases, the old limits which circumstances set to 



Description and Explanatioft 21 

human welfare are passed; no such physical circumstance 
can be an absolute bar to further progress, though it is a 
barrier that is insuperable until human intelligence improves. 
It may be said that the physical circumstances which prove a 
barrier in any society show the high water mark of the skill 
and enterprise of that society. The two are closely related, 
■and in accounting for the low condition of any race we may 
lay stress either on physical circumstances or on the cha- 
racter of the people — their wishes and habits. We may say 
that it is impossible for them to do otherwise because of 
their surroundings, or we may say that it is impossible for 
them to do otherwise because of their habits and dispositions ; 
the two are correlative. 

3. For some purposes one mode of statement is more 
convenient, for others another. We may notice that for the 
purpose of describing how great the difference is, we do well 
to keep to the physical circumstances, because we can note 
and describe them ; but we may make a mistake in speaking 
positively about inherent disposition and character because 
these are after all matters of inference. Although the physi- 
cal conditions are most easily described, it does not follow 
that they are the most potent factors and that human cha- 
racter is really formed by them ; the whole history of civilisa- 
tion refutes such a supposition ; wherever human powers are 
improved, and men become more skilful or energetic, or self- 
reliant, or able to co-operate with one another, they are sure 
to obtain a greater command over nature, and a better means 
of supplying their wants. And here we may perhaps say 
that while the material adjuncts of any state of society may 
often give us the best means of estimating the stage of 
progress it has reached, the personal elements of skill and 
character supply an ultimate explanation of any definite 
progress in the arts of life. It is ultimate so far as economics 
are concerned, for it takes us outside the sphere of wealth 
altogether, and to carry the matter farther we should have to 
enter on a fresh enquiry and to examine the growth of mind 
and character. 

4. {a) By looking at their physical conditions and ap- 



22 Industry without Capital [Ch. II. 

pliances we find plain features which distinguish societies of 
human beings, where there is no capital, from others. They 
have no means of communication or regular commerce and 
no sufficient medium of exchange. Unless there is an 
abundant medium of exchange it is impossible to accumulate 
a fund of such wealth as can be transferred from one kind 
of employment to another ; there may be hoards of food or 
other wealth, but these hoards cannot be realised or em- 
ployed at will in any kind of industry or direction of com- 
merce. It is when there is money, or a circulating medium, 
that the men who have masses of money, have a fund of 
wealth which is readily transferable, and thus it appears that 
habitual commerce and the use of a medium of exchange is 
a necessary condition, without which the formation of capital 
cannot take place at all. These are not the sole conditions, 
for the general accumulation of capital may not take place 
even though these conditions are present, as the history of 
mediaeval England shows ; but where these phenomena do 
not appear, capital cannot come into being. 

{b) The absence of trade is a plain fact, the explanation 
of the fact is found in the personal characteristics of the 
people. If we wish not only to call attention to the differ- 
ence but to ask for the reasons why some races have no 
regular commerce and medium of exchange, we may note 
three personal qualities which must all be present before 
trade becomes habitual. They must (a) be so far on friendly 
terms with their neighbours that they can meet and drive 
bargains. (/3) They must be able to produce or procure 
something to exchange, and (y) they must be able to keep 
and stow things to exchange. Neighbourliness, Skill, Provi- 
dence — if any one of these personal qualities is absent, there 
can be no regular commerce; possibly all three traits may 
alike be wanting in the case of mere hunters or the most 
savage races ; but if any one were absent, regular commerce 
could hardly be developed, and travellers ought possibly to 
be more careful before ascribing the backward condition of 
any race to some one personal characteristic, as e. g. im- 
providence ; it must be a matter of inference which personal 



Neighbourliness^ Skill, Providence 23 

quality is lacking or how far all are weak. It is, however, 
clear that where these three personal qualities are present in 
the people of adjacent social groups which have dissimilar 
productions, commerce is likely to arise ; and the more 
friendly relations, skilful production, and patient foresight 
are cultivated, the more widely and securely may regular 
commerce be extended ; it is hardly necessary to show that 
it goes on more easily and advantageously when a medium 
of exchange is understood, and money dealings have taken 
the place of barter. 

It is not very clear whether it is possible for regular 
commerce to go on without the use of a circulating medium. 
It appears that the Dyaks of Borneo are accustomed to 
barter one thing for another, but cannot grasp the advantages 
of a three-cornered exchange or the use of a medium. ' A 
Dyak,' according to Mr. Brooke, ' has no conception of a 
circulating medium. He may be seen wandering in the 
bazaar with a ball of beeswax in his hand for days together, 
because he cannot find any one willing to take it for the 
exact article he requires. This article may not be more than 
a tenth of the value of the beeswax, but he would not sell it 
for money, and then buy what he wants. From the first, he 
had the particular article in his mind's eye, and worked for 
the identical ball of beeswax with which and nothing else to 
purchase it.' There are other cases too, such as the com- 
merce of half-agricultural, half-piratical traders who used 
slaves as a means of measuring wealth, — where it is not quite 
clear that these human chattels are properly spoken of as a 
medium of exchange ; their importance chiefly lay in their 
capacity for labour, and their use as a measure of wealth was 
secondary. Of the precious metals it may be said that they 
are, over a large surface of the globe, chiefly used as media 
of exchange, and that the other employments are subsidiary ; 
at any rate they are media of exchange which can be readily 
hoarded, as slaves cannot. When skill and intercourse so 
far advance that men use metalhc money, or a kind of money 
which can be accumulated, then it appears that, as far as 
physical conditions are concerned, capital may be formed 



24 hiditstry withoitt Capital [Ch. II. 

and funds of wealth accumulated and used in the hope of 
obtaining an income. But where there is no commerce and 
no money, there may of course be hoards of food or wealth, 
but there is no opportunity for forming or investing capital. 

5. Besides the conditions which are requisite for the 
formation of hoards of money, there are others which must 
be present, before the owner can expect an income or be 
willing to employ his money. Even in societies where there 
are considerable hoards of money, there may be a compara- 
tively limited field for using them as capital. The man who 
has a fund of money will not wish to let it out of his keeping 
unless he sees his way to be a gainer by doing so. He will 
not wish to employ it in any direction in which he cannot be 
sure of an income — a return in money. But even when 
society has made great advances there may be difficulty in 
procuring this, for neither agricultural nor industrial pursuits 
will serve his turn so long as they are pursued for the sake 
of livelihood or convenience, not for sale in a market for 
profit on the sale. The mediaeval estate in England was 
managed as an independent group; and a comparatively 
small proportion of the produce was sold. The bailiff would 
endeavour to provide seed corn and food for the household, 
together with supplies for the lord and his retainers; he 
would sell any balance he could spare and improve the 
buildings or condition of the estate with the receipts in good 
years ; he would have proved that the estate was well main- 
tained by showing that the wealth under his charge had not 
diminished in any separate item ; the estate paid its way and 
prospered. Only when the whole produce was brought to 
market and turned into money did it become natural to 
calculate out the relation between the worth of the estate 
and the annual return ; only then too did market considera- 
tions come to be dominant, and the owner began to use the 
land in the way that would pay best— for sheep farming or 
for growing corn, as the case might be. In the old days he 
had managed his estate as the source of provision for his 
household — as an isolated and, so far as might be, self-suffi- 
cing whole and sold the surplus he could spare. Not till 



Selling a Surphis or Workmg for a Market 25 

landowners managed their estates in such a fashion as to 
yield the best return, has agriculture assumed a shape in 
which it can be taken up as a suitable field for the operations 
of the capitaUst. The change took place when the latifundia 
superseded the citizen farming of Rome, and reappeared 
when sheep-farming was substituted for arable cultivation in 
Tudor England. 

Similarly there was a long period in English industry when 
the artisans were ready to work up the materials which 
others supplied, and obtained a living by their labour, but 
they scarcely made money. They did their work, and took 
a respectable place in their calling and trained their sons to 
follow them, but they fingered very little money and they did 
not grow rich. One English industry appears to have taken 
a new form in the fifteenth century ; the clothiers were rich 
men who could buy up the wool and let it out to craftsmen 
to work up in their cottages, while they received the finished 
goods and sold them to retailers or exporters ; they did not 
themselves work for a living, but they tried to meet the 
market, and their operations were profitable or not, according 
to the prices which ruled in distant marts. Here too the 
possibility of turning a profit determined the fashion or 
materials of the work that was done ; the clothiers, by setting 
men to work, obtained an income for themselves ; when this 
occurred we may say that the staple trade of England had 
assumed a shape in which capital might be attracted to it. 

So long as men pursue their calling with the view of 
providing for their own wants, or getting a living, and only 
sell an occasional surplus, they may continue to carry on 
industry, but they cannot make annual money payments 
such as the capitalist desires. It is quite another matter 
when the produce is all taken to market, and the possibilities 
of getting a price and making a profit determine the scale 
and the direction which the industry shall take. Where any 
business thus becomes interpenetrated with pecuniary con- 
siderations, it assumes a form in which the capitalist may 
invest in it. So soon as the prospects of getting a price are 
the ruling considerations which affect the conditions of pro- 



26 Industry withoitt Capital [Ch. II. 

duction, it is possible for the capitalist to intervene. But 
when any one carries on an employment as a bye-industry, 
or works for regular rations allowed by another, or makes 
goods that he means to use himself, the variations of price 
in the nearest market for the articles he produces will affect 
him but little. Hence we need not expect to find, even in 
countries where capital has been formed very largely, that it 
is used in all industries alike. Some trades may be carried 
on by persons who have little or no capital, and work for 
their living, while others are organised with reference to 
a regular market, and managed by capitalists. Or we may 
have the two types side by side in the same employment, as 
is the case with dressmaking and cooking. A lady's maid 
and a domestic cook have no capital, but there must be 
many thousands invested in some large establishments in 
Regent Street or in such firms of caterers as Spiers and Pond. 
In England, at the present day, capital has come to be used 
in connexion with every sort of industrial operation as well 
as in agriculture and in commerce, and this is therefore pre- 
eminently a capitalistic era. But it would not be a little inter- 
esting to trace the steps by which this has come about and to 
see how capital has invaded first one field and then another. 
There are then two sets of conditions, one having relation 
to the formation of hoards of money, another to the possi- 
bility of using these hoards so as to obtain an income, which 
must be taken into account. When both are generally 
present in any society we may say that it has entered on the 
capitalistic era. On the other hand, there are some societies 
in which there is no capital at all, because there is no fund of 
money, and in others the role of capital is very limited, 
because there are so few employments which provide an 
income. If a circulating medium is used and the conditions 
are present which render the formation of capital possible, 
there can be little doubt that it will be possible to employ it 
in commerce ; the opportunity of applying it to industry and 
to agriculture will generally follow later when these employ- 
ments are taken up not merely as means of livelihood, but 
for the sake of profit. 



Co7ninercial Capital 27 



III. Gradual Introduction and great Importance of Capital. 

1. This fact that capitaHst organisation has only been 
applied gradually and bit by bit to different spheres of 
commercial and industrial life renders it necessary to call 
attention to a defect in the mode which many economists 
have adopted in treating the subject. They have taken 
capital employed in industry as typical : some -have dealt 
with it exclusively and others have regarded it as the 
ordinary form which deserved primary attention. But 
capital may be engaged in commerce, or regularly employed 
for lending, in lands where it is never used in connexion with 
agriculture or industry. The application of capital to com- 
merce is earlier as well as more widely diffused than the ap- 
plication of capital to industry. Those who fix their attention 
on a special form of capital may attach undue importance to 
some accidental feature, and this may affect their treatment 
of the whole subject. The functions of capital are less 
likely to be clearly seen when we confine our attention to a 
special and later development. 

Thus if it be said that capital is wealth used for the pro- 
duction of more wealth, the definition will hold good of all 
capital applied to industry, but it is not true of all capital 
as such. The goldsmiths lent Charles II money to enable 
him to pay his way till the taxes could be collected, and not 
at all to enable him to engage in industry and produce more 
wealth. It was capital belonging to themselves and their 
customers from which they hoped to get an income, and the 
stop of the Exchequer threatened them with ruin by depriving 
them indefinitely of their capital and their interest. It is 
absurd to define capital by mere reference to one of the 
possible uses to which it may be applied. Popular language 
regards the goldsmiths' wealth as capital, even though it was 
not applied to productive industry, and it is wise to frame a 
definition so as to include a fund of this kind. 

2. The account which has just been given of the conditions 
which are necessary for the formation of, and the employment 
of capital may also serve to throw some light on the question 



28 Industry withoiU Capital [Ch. II. 

which has been so much debated as to whether capital is an 
' historic category ' or not ; an ' historic category ^ may be 
said to be a conception which is applicable to mundane 
phenomena at some stage of progress, but which is not 
applicable to them as they have been at all times and in all 
places. There is certain implied argument which has given a 
tinge of acerbity to the discussion ; for it seems to be assumed 
on both sides that if an economic form has come into 
existence, it cannot be a permanent element in our indus- 
trial life. Those who regard capital as a factor of the first 
importance in existing industry are disposed to deny that 
there could ever have been a time when it did not exist, or a 
time when it will cease to be. Those who regard capital as 
the ' enemy ' are inclined to insist that industry was carried 
on for centuries without its aid, and therefore to assert that 
no serious loss would ensue if it were to disappear as a 
separate factor. Certainly no one who accepts the doctrine 
of evolution will deny that capital has come into being 
somehow, and is not a part of the eternal nature of things. 
In the preceding pages an attempt has been made to in- 
dicate the conditions under which it is called into being; 
they are conditions of life and habit which are very widely 
diffused, and so long as they subsist, capital is likely enough 
to be maintained. If we fell back upon barter, or if men 
broke up society into self-sufficing communities which each 
worked for a hvelihood and did not trade, capital could not 
in all probability long survive. But it is a powerful factor in 
industrial life and progress at present, and is likely enough 
to be permanent so long as the conditions survive. 

All permanence in phenomena as known to us is only 
relative at best ; it is at least conceivable that matter and 
its properties are historic categories, and that the material 
universe was at one time composed of ether which had not 
yet been formed into vortices. After all, the important thing 
is, that matter exists now, and that since matter has been 
formed, the movements of the planets take place according 
to the law of gravitation. It is strange if any one is pre- 
pared to contend seriously that capital is not an historic 



Progress of Opulence 29 

category which has become applicable in the progress of 
society, and to argue that it is an eternal existence. But 
the plain fact that capital has come into existence within 
historic times in no way diminishes its importance in these 
societies where it does now exist, and gives no reason to 
suppose that it might be swept away, without injuring 
industry. The earliest forms of animal life possess neither 
stomach nor heart, but that does not prove that the stomach 
and the heart are useless organs in the anthropoid apes, and 
might be removed without serious damage. But experience 
goes to show that any society, in which the necessary con- 
ditions are present, is better provided with the necessaries and 
comforts of life, when its members form capital and proceed to 
apply it to commerce and industry and agriculture as oppor- ^ 
tunity serves. Capital comes into being in what Adam Smith 
called the ' natural progress of opulence,' and there need be 
no expectation of its disappearance unless it can be shown that 
the natural progress of opulence proceeds better without it. 



CHAPTER III. 

Capitalist Era. 

I. Capitalist Era in England. 

1. Capital may be formed in any country where the use of 
money is familiar and habitual, it may be applied in any 
direction where commerce or industry are so organised that 
a money-income may be expected. There have been lands 
where it was unknown, or where the sphere of investment 
was small, but we live in a time when it permeates the whole 
of our economic life. There is no kind of business into 
which capital may not be drawn, and all the affairs of the 
day are affected by its influence, as business of every kind 
is organised on capitalistic lines, and it exercises a con- 
siderable amount of political power. 

In the fifteenth century the capitalist was just beginning 
to make his presence felt in connexion with industry, and 
there were wealthy clothiers. In the present day capital is 
the dominating power in all kinds of work. This is largely 
due to the introduction of machinery ; in old days a trade 
prospered if the workmen were skilled, and it could scarcely 
be transplanted without the migration of men who could 
practise the art; skilled labour was the most important 
factor in production. But in our days machinery does the 
work more accurately and more cheaply than labourers can, 
and the capitalists who own the machinery have a very 
superior position in administering any branch of production ; 
the dominant power is theirs. 

In agriculture too we have similar phenomena. The old- 



Capital permeates Industrial atid Political Life 31 

fashioned idea of living on the land and selling the surplus 
has completely gone out; the landlord may be a capitalist 
who purchases an estate as he might buy any other property, 
in the expectation of making it pay ; and the English farmer 
is generally a capitalist who works for a return in money. 
It has been a common complaint in recent years that though 
the crops are good the farmer cannot get a remunerative 
price, and that he is therefore carrying on his business 
without any profit. Many of those who have remedies for 
the depressed state of agriculture are inclined to blame the 
farmer for not meeting the market better by trying fruit 
farming or something else than corn growing. Both the 
complaints and the proposed remedies serve to show how 
completely the agricultural interest is interpenetrated by 
capital, and how generally the conditions which Ricardo 
assumed in his theory of rent, hold true in England at the 
present time. 

2. Capital too supplies the means by which the govern- 
ment of the country — whether national or municipal — is 
carried on. National borrowing often provides for mihtary 
and other expenses, and municipal borrowing secures the 
use of capital for urban improvements. The power of 
national creditors may sometimes be an element of danger ; 
certainly the hold which English capitalists have upon other 
countries, and their desire to protect their interests in Egypt 
or Turkey, may lead to difficult complications. At any rate 
it is clear that this economic factor interpenetrates the whole 
of our political life. 

Indeed the variety of the directions in which capital plays 
a part becomes obvious in a moment if we look at the com- 
plicated but delicate machinery by which its movements are 
effected. The whole of the banking system of England, 
connected as it is with the banking system of the world, is 
largely engaged in the transfer of capital; the Stock Ex- 
change, with all the vast numbers of shares and securities 
which are constantly dealt with, shows the immense amount 
of capital which is available for carrying on business of any 
kind or engaging in new enterprises. 



32 Capitalist Era [Ch. III. 

3. Several of the different remedies which are proposed for 
the social difficulties of the time also indirectly serve to illus- 
trate the acknowledged power of capital ; philanthropists very 
often propose to rectify the wrongs of our times by a more 
widely diffused possession of this factor in production. Some 
adjure the working classes to be thrifty by means of Post 
Office Savings Banks ; some advocate the co-operative 
societies, where the consumers of goods become partners 
in a business for supplying one another; others suggest 
that shares in the capital of a business should be assigned to 
the employes so that they may honestly be sharers in the 
profits. But all these remedies are expedients for inducing 
the artisan to exercise capitalistic virtues and thus to become 
a sharer in capitalistic gains. 

Since capital is so dominant in industry and agriculture 
as well as in commerce, in politics and social reform, it 
seems to deserve very special study. There is no other 
influence in our day that is so all pervading, there is no other 
economic factor that is so powerful, whether for good or for 
evil. It is the very life-blood of our existing civilisation, and 
hence the attacks of those who wish to see this ended are 
concentrated on capital; while those who hope for the 
modification and improvement of our present society are 
bound to look closely for defects in this quarter. More than 
this, the dominance of capital over other interests is a com- 
paratively new thing in our land, and it is not unreasonable 
to hope that we shall at least get clearer light on the pro- 
blems that are new and pressing in the present day when we 
concentrate attention on this special feature. But though 
comparatively new in the history of our race it is not new in 
the world. There has at any rate once before been a time 
when capital was all pervading, and its influence strikingly 
felt — not in building up the greatness of England, but in laying 
the foundations of the Empire of Rome. From the time of 
the Punic Wars the sinews of Roman strength were not sup- 
plied by the valour of peasant citizens, but by the enterprise of 
wealthy capitalists ; it was through their organisation and 
resource that the Roman Republic became mistress of the 



• Republican Ro7Jte 33 

world. In the failure of the Equites to maintain a leading 
position under the Empire there was a final judgment upon 
their failure as administrators, and the rule which they had 
done so much to build up finally succumbed because of 
weakness which was inherent in their policy from the first. 



IT. Capitalist Era in Rome. 

1. In Republican Rome, as in England to-day, there was a 
very wide field for the investment of capital. One of the 
earliest opportunities for employing it was found in a system 
copied from Greeks and Orientals. This consisted in farming 
out the taxes, a mode of collection which is always apt to be 
extortionate, as there can be no proper check on the rapacity 
of minor officials. Great companies with shareholders 
{socitis, particeps) in Rome and factors {itegociatores) in 
the Provinces undertook the collection of the customs or of 
the tithe ; but they were also engaged in industrial as well 
as fiscal undertakings. In the province of Asia — one of the 
few provinces which not only paid the internal expenses but 
yielded a large money income to Rome — there were great 
gangs of slaves owned by Roman capitalists, and engaged in 
the salt pits or in agriculture. Mining enterprise was carried 
on in the same fashion ; while the importation of corn for 
largesses, the equipment of the armies, and the construction 
of public works, all gave scope for the operations of con- 
tractors. The whole business of state was let out to capita- 
lists, and these capitalists were organised in companies 
consisting of many shareholders, some of whom had large 
holdings (^partes), while others had but small investments 
{partiailae). The forum and the basilicas were the chief 
haunts of these capitalists, and the shares in the diiferent 
undertakings were capable of transfer. The conquests of 
Rome were made by armies fitted out by Roman capitalists ; 
the provinces of Rome were administered and their resources 
developed by Roman capitalists ; the city of Rome was em- 
bellished, and the populace of Rome was amused and fed, by 



34 Capitalist Era * [Ch. III. 

the enterprise of Roman capitalists. Affairs of every kind 
were carried on by contractors, who manipulated the money 
of the inhabitants of Rome and other towns, and executed the 
work by means of armies of slaves. 

2. There are some not unimportant differences in the 
manner in which business was conducted by Roman and by 
modern capitalists; their relations to the State were some- 
what different, as the usual form in Rome was that of con- 
tracting for a particular piece of work, not that of lending 
money to the State to be administered by its own officials. The 
London capitalist invests his money in the funds or in some 
municipal loan; the Roman capitalist formed a company 
to contract for some undertaking, as is done by gas and 
water companies. The national debt has been chiefly raised 
on the credit of the nation, and not, as in its earliest stages, 
on the security of particular rights assigned to the lenders. 
It was only in rare cases that Roman bankers would part 
with their money on such terms ; and there was unusual 
liberality in the conduct of the bankers who, without security, 
lent money for the equipment of forces against Hannibal 
after the battle of Cannae (b. c. 242) on being promised 
indemnity from the risks of war and of tempest, and on the 
understanding that they should be paid out of the first money 
that came into the treasury. The credit system, altogether, 
was much less developed, and the forms of credit did not 
supply a circulating medium ; there were differences in the 
forms under which companies were organised and in the 
relations of the different classes of members, but on the 
whole the two social conditions present interesting analogies, 
because of the dominance of capital in both cases. 

3. Capital was a political power in the Roman Republic, 
however, in a sense in which it has never yet been in Eng- 
land. There are some similarities, for commercial jealousy 
led to the destruction of Carthage and Corinth — the two 
rival mercantile powers, — and we have ample analogies 
to these struggles in the history of our conflicts with Holland 
and with France. But, in the extraordinary power of the 
monied men in the State, Rome stands alone; their unexam- 



Equites and Modern Co?tipanies Compared 35 

pled influence was the effect of the legislation of the Gracchi, 
who desired to raise a counterbalancing influence to the 
patricians. The eqitites, or monied men, thus acquired judicial 
power ; while the small shareholders whom they influenced 
were so numerous that they also controlled the legislative 
power in the comitia. The distributions of corn which began 
at the time of the Gracchi rendered tillage unprofitable near 
Rome, and opened up a field for the profitable employment 
of capital in pasture farming in Italy, and in the importation 
of foreign corn. Capitalists had replaced citizen farmers in 
the land, they controlled the food supply of Rome, and they 
were the agents by which the military system and provincial 
governments were administered. They had vast economic 
powers, and they were to a large extent irresponsible in the 
way they exercised them, till the empire diminished their 
overweening influence ; for they administered the law as 
judges, and they could control the legislation through the 
voting power of the members of joint stock companies. 

The closest analogy which we have to the Roman system 
is in the story of the East India Company ; but that company 
was after all closely and jealously watched by an English 
parliament and public, many of whom had no interest in the 
great monopoly, and who maintained a jealous criticism of 
its character. Whatever abuses may have been perpetrated 
by those who shook the pagoda tree, they were abuses of 
the system, not parts of the system ; the good government 
of the people of India has been kept in view, with whatever 
failures and whatever ignorance, throughout the whole period 
of the company's political dominion ; and the friendly rela- 
tions of many leading men with natives have no parallel in 
the story of Roman governors or publicans and provincials. 
Roman dependencies were administered by joint stock com- 
panies, the judges were drawn from the leading financiers, 
the laws were passed by the shareholders ; it was as though 
the whole affairs of government were handed over to the men 
of Capel Court or of Wall Street, to be carried on according 
to their own traditions. 

Stock Exchange morality in England is said to be low ; at 



36 Capitalist Era [Ch. hi. 

Rome it was lower still. When during the second Punic war 
the contractors, who had an indemnity for risks at sea, sunk 
the ships which were taking supplies to the Roman army 
and obtained large profits by the transaction, the whole power 
of the financial interest was employed, and at first success- 
fully, to shield them from any punishment for a notorious 
crime. If this were feasible in regard to a fraud which was 
perpetrated in regard to the most pressing interests of the 
Roman people, we may fancy how little control was exercised 
over those who administered distant provinces or trafficked 
with half civilised peoples. The Verrine orations show what 
it was possible for Roman greed to accomplish even in a pro- 
vince which had special constitutional privileges, and how 
utterly that fertile province had been exhausted. But there 
is something more instructive in the story of a man like 
Lucullus, who had set himself to repress unjust exactions in 
Asia; he earned the dislike of the Roman capitalists and 
their eloquent spokesmen, and his public career was de- 
stroyed. It is scarcely an exaggeration to say that Lucullus 
was disgraced because he had not done the things of which 
Warren Hastings and Impey were accused. Under these 
circumstances it is perhaps strange, not that the provinces 
suffered so much under these administrators, as that they 
did not suffer more. But assuredly the picture is black 
enough ; on one hand we find traces of grinding tyranny, 
on the other there are pictures of horrible outbreaks against 
the oppressors. Such were the massacres at Cipta (b. c. 112), 
at Genabum, or the still more terrible risings in Asia, where 
thousands of Italian merchants were destroyed. When Rome 
recovered from the financial crisis which ensued, she set 
herself to redeem these losses, and the overthrow of Jugurtha 
and of Mithridates, gave her still wider provinces to 
drain. 

4. With the rise of the Imperial power, the capitalistic 
power which had been concentrated at Rome became some- 
what more diffused in difTerent parts of the Empire. The 
development of equitable jurisdiction, and the strength of 
the military despotism, reduced the importance of the monied 



Capitalist Era in Rome 37 

interest in the State, and diminished the worst abuses which 
had flourished under its regime. For us, however, the period 
from the Gracchi to the fall of the Republic is of great in- 
terest, as it furnishes instructive analogies, and contrasts 
with the capitalistic era in which we live. 



CHAPTER IV. 

Material Progress and Moral Indifference. 

I. Material Progress and Increased Opportunities. 

1. The facts that capital is so dominant now and was so 
dominant under the Roman Republic are sufficient to bring 
into clear relief its extraordinary power. The conquest of 
the world, the great aqueducts and roads, the very ruins 
that remain, demonstrate the vast industrial forces which 
Roman capitaHsts were able to bring into operation ; it was 
with their help that the city was transformed and raised from 
its humble estate as the mere centre of a little district to be- 
come the mistress of the world. In similar fashion England 
has been transformed since the opportunity for the general 
accumulation and investment of capital began. Since Tudor 
times there has been an expansion of England far greater 
than the expansion of Roman power in the last centuries of 
the Republic. Our command over machinery has effected 
a revolution in industry of every kind of which they could 
not dream, and our commerce gives us the means of pro- 
curing commodities from lands they never heard of. It has 
all come about under a capitalistic regime and with the as- 
sistance of capital, and though we may for the present defer 
the enquiry ' Wherein does thy great strength lie ? ' we are 
warranted in assuming that capital either possesses or sets 
free immense industrial energy. 

This is still more noticeable if we look at the changes 
which are being promoted in new countries in the present 
day. There is a general cry that they require capital in 



Material Progress and the Popjdatioji Problem 39 

order that their resources may be developed, and the country 
may be opened up. They are inclined to borrow capital, 
often rather recklessly, so as to make harbours and railways, 
and bring as large an area of the territory as possible within 
the range of international commerce. The power of capital 
is obvious in the past, and it is recognised in the present as 
a primary factor without which the progress of even the 
most fertile country must be indefinitely delayed. 

Perhaps however we may ask the questions, Why should 
these resources be opened up? Why should progress not be 
delayed? There are optimists who are continually rejoicing 
over the rapidity of progress ; and those who feel that mate- 
rial progress is a good thing can hardly entertain a doubt that 
the faster the progress goes on the better it is. But there 
are also pessimists among us v/ho are oppressed by a sense 
of the numbers of the population, and who fear thr.t it is in- 
creasing with leaps and bounds so as to strain the food-pro- 
ducing power of the globe. It may be true that material 
progress is a good thing, and that the more rapidly it takes 
place the better; but it is also true that material progress 
gives opportunities for the increase of population, and that 
rapid progress gives opportunities for rapid increase. This 
fact may make it worth while to consider the question whether 
there is not another side to the shield. 

2. What do we mean by material progress? It surely is 
a greater command over nature, an increase of our skill and 
enterprise which enables us to make use of things that were 
hitherto denied us. We pass the old limits. But at present 
it is usual for human beings to utilise their increased power 
over nature by securing more sustenance, and to increase in 
numbers as the limits are removed by the march of progress. 
It is perfectly clear that every step in progress makes room 
for an increase of population ; and it is also true that some- 
where there is an absolute limit to the possible production of 
food, and that the earth is physically incapable of supporting 
more than a given number of millions of inhabitants — what- 
ever their skill might be. There is, somewhere or other, an 
fibsolute limit to the possible production of the globe, and it 



40 Material Progress and Moral Indifference [Ch. iv. 

may be guessed that if the present numbers were quadrupled 
we should be nearing the absolute Umit of the possible popu- 
lation. Every step in material progress brings us nearer the 
absolute limit of possible production, and the more rapidly 
we advance the sooner we shall reach that absolute limit. 

Perhaps it might be well if we went more slowly ; if pro- 
gress were more gradual there would be room for a change 
in the standard of human comfort, and the margin which in- 
vention offered might be used for increasing the well-being 
of those who now exist rather than in increasing their 
numbers. 

3. But this is an idle dream ; and when we look more 
closely at the conditions which brought about material pro- 
gress we need not despair. There is no evidence that the 
mere increase of numbers has lowered the standard of com- 
fort, though there is ample evidence that any population, 
with a given standard of comfort, will soon people up to the 
margin marked by any new step in progress. The pressure 
of population could never alter the limit ; skill and enterprise 
alter the limit and then population fills up the gap that is 
left. In an age of rapid material progress, population may 
be expected to increase — not because of any inherent and 
necessary force, but because material progress has given it 
room to expand. There have been long periods when there 
was little material progress, and when, so far as can be seen, 
there was no serious ' pressure of population ' and no lower- 
ing of the standard of comfort. In the present day popu- 
lation increases fast because material progress goes on so 
fast ; but we are not forced to conclude that if progress were 
checked, the pressure of population would go on remorse- 
lessly and become increasingly severe. Each step of pro- 
gress leads us nearer an absolutely stationary state, which 
is indefinitely distant. It is not quite easy to see why this 
should be a matter for great self-gratulation, but it is at least 
a goal which we may contemplate without serious foreboding. 

4. Indeed, material progress is a good thing, and we are 
not justified in setting ourselves to delay it, even if we are 
alarmed by some of its accompaniments. It is easy to 



IVeaUh and Opp07'tnnity 41 

inveigh against luxury and the evils of misspent wealth, and 
no one would deny that wealth, like other good things, may 
be misused ; but for all that, wealth is a good thing, and 
chiefly good on this account, — that it gives the opportunity 
for making the most of human faculties and powers. The 
ordinary man who is engaged in drudgery all the day long 
has no vigour left to devote himself to intellectual pursuits ; 
the woman who is eaten up with anxiety as to the next day's 
dinner or the next quarter's rent has no heart to cultivate 
artistic tastes. A genius here and there may rise above 
these depressing conditions, and though he may be a stronger 
man because he has risen, he may also be a harder man 
because he has had to go through so much. The hero is 
the man who rises despite his surroundings, and there will 
always be scope for heroic virtue ; but the good man is 
called to make the most of his opportunities, and the greater 
his opportunities the fuller and richer may his personal life 
become. The man with many opportunities who makes the 
most of them is not more meritorious than the man with few 
opportunities who makes the most of them ; but though not 
a more meritorious man he is in many ways a better man, — 
more richly endowed and more highly cultivated. 

In a very poor community — say a new colony — there can 
be very little time and very few facihties for mental culti- 
vation, and the opportunities of attaining a high degree of 
personal development are wanting ; those who wish for such 
opportunities are forced to seek them by visiting, at what- 
ever cost, an old country. In a savage tribe the possibilities 
are still more remote. Every advance in material wealth 
in the community will give greater opportunities to the 
individuals who compose it. 

This becomes clear if we contrast the England of the 
present day with England four hundred years ago. Now 
there are plenty of books available at low prices, or in free 
libraries; then there were but few, and these so inaccessible 
that many men had never the opportunity of reading, and 
felt no privation in not possessing the power. Again, there 
are now opportunities for travel, with all its effects in en- 



42 Material Progress and Moral Indifference [Ch. IV. 

larging the mind, which were absolutely wanting then. In 
old days comparatively few people journeyed far from their 
birthplace, but now few of the artisans of our midland 
towns have never seen the sea; and a very large number 
of rustic folk have paid one visit to London. On the other 
hand, while gardening was almost unknown in the fifteenth 
century, the Londoner has now a constant opportunity of 
seeing the most beautiful flowers of all lands. Cheap 
printing and cheap travelling have opened up new worlds 
of interest and thought to the whole population, and thus 
the great material progress of those four centuries has given 
the opportunity for great intellectual progress too. 

Wealth which is used as a means of increasing mental 
power or of cultivating artistic refinement is not wasted ; and 
even when it is so used without conscious regard for others, 
it is not always without a beneficial influence upon the lot of 
others. Two centuries ago the country squire lived a 
narrow and coarse life ; the elevation in the tone and culti- 
vation of the gentry has given a new direction to the 
aspirations of the simple. His attempts at imitation do 
not end in his being as drunk as a lord ; and a real effort 
is being made that the poor should be able to enjoy in 
public gardens, in museums, in libraries or in clubs, those 
opportunities of intellectual and artistic improvement which 
the rich possess in their own homes. It is private wealth 
which gives these opportunities to the rich, and it is only 
where the material wealth of the community is large that 
such opportunities can be afforded to the poor. 

5. It is easy to disparage material wealth, to insist that 
many poor people are more meritorious than many of the 
rich, to scoff at misused wealth, and to urge that it is a far 
nobler thing to be virtuous and poor, rather than rich and 
vicious. Of this it need only be said that it is always wrong 
to misuse opportunities ; that great riches give great op- 
portunities, and that from those to whom much has been 
given much will be required. Each class in society is too 
ready to criticise the manner in which others misuse their 
opportunities ; the artisan may misuse the opportunities 



Mo7iey may be a Power for Good 43 

given by higher wages and shorter hours, but for all that 
they are good things, and things he will learn to use. There 
is no question as to the wickedness of those who misuse 
wealth, or the fact t^at- many do misuse it. Still it remains 
true, that wealth may be well used and does afford great 
opportunities of improving human tastes and powers. 

And since wealth may be well used, the pursuit of wealth 
is not necessarily an evil. It just depends. It is an evil 
if wealth is pursued for its own sake, and without any care 
as to how it shall be used ; it is not an evil if it is pursued 
as a means to nobler ends. It is not wrong to be rich, 
though it is always wrong to be selfish and covetous, whether 
this selfishness takes the form of amassing wealth like a 
miser, or of coveting the goods of others like a thief. Money 
is a power for good that we need not despise, though we 
would do well to remember that the love of money as such, 
and for its own sake, is the root of evil. In the case of 
individuals wealth is often pursued selfishly and greedily 
for its own sake ; — though the ' money-grubbing ' of those 
who desire to give their children a better education and 
position than they themselves possessed is humanised and 
redeemed from much of its baseness. But in the progress 
of a community as a whole even the wealth amassed by the 
self-seeking of individuals is sometimes merged indirectly 
and ultimately in a general gain, and the effects of wealth 
in providing more general opportunities for personal cul- 
tivation are very notable. Material wealth is a good thing 
in so far as it provides material conditions for improving the 
intellect and tastes of man. 

6. There is, however, an element of truth in the disparage- 
ment of wealth, to which it is most important to direct 
attention. It has been said above (p. 21) that it is not in 
material surroundings, but in personal elements of skill and 
character, that the ultimate reason of any step in progress 
lies. And hence it is true that though favourable material 
conditions are most important, as without them a high 
condition of culture cannot be diffused or maintained, they 
are passive and need to be used by man, for in themselves 



44 Material Progress and Moral Indifference [Ch. iv. 

they are powerless to produce an elevating influence. That 
can only come from a personal power that cherishes a higher 
ideal than is given in its surroundings, and sets itself to 
actualise that ideal in bettering its surroundings. The poet 
or the artist or the saint who maintains a purer ideal of life, 
inspires men to try and live for something better, and thus to 
take advantage of the opportunities afforded by material 
wealth. The most worthy ideal is that which holds up the 
noblest conception of life, one that is never superseded, and 
yet a conception which can be used as a guiding motive for 
life. It is in this fashion that the Christian conception of the 
Kingdom of God upon earth has been such a power in the pro- 
gress of civilisation. And he who tampers with his ideal, or 
deliberately sacrifices it, is to be blamed as a renegade, because 
he has been content to enjoy an easy lot instead of seeking to 
be true to the best that was in him, so as to teach others to 
make a better use of the opportunities they possess, what- 
ever they are. Spiritual power, which recognises the divine 
ideal for man in fullest measure and maintains it, is an active 
principle, by which material goods may be turned to the 
best account. And since in the individual human being 
there is a conflict between the flesh and the spirit, between 
present comfort and aspiration after a purer, worthier life, 
there is a truth in the asceticism which would keep the body 
in subjection, and maintain complete self-mastery lest the 
love of an ideal nature or of a supernatural Being should 
be dimmed and decay. 

The artist who contemns vulgar excess, and the ascetic 
who despises mere material comfort for himself, who cul- 
tivates the highest aspirations in himself and seeks to rouse 
them in others, are after all the chief active elements in 
human progress. They cultivate power of will, moral power, 
spiritual power. Hence are drawn ideals, in the pursuit of 
which ordinary men may most fitly use their possessions ; 
but these must remain mere ideals unless there are material 
conditions which render it possible to actualise them, for 
others to enjoy as well. Enthusiasts have the moral 
energy, and they give the stimulus which makes other men 



Present and Futit?-e Opportunities 45 

long to rise ; but though the noblest men may discipline 
themselves to be independent of wealth and of various 
comforts, and may thus cultivate moral power of their own, 
it yet remains true that it is wrong to despise worldly goods 
with the cynic, and foolish to ignore the external means for 
good which material wealth supplies, and the opportunities 
for intellectual and artistic self-development which it affords. 
The moral power is obtained not by avoiding external goods 
but by victory over self; and a forced privation of any 
material good gives no moral power ; it may but strengthen 
the force of passions and desires. It is well to practise self- 
discipline, but it is also well to remember that all the ma- 
terial things that God haS' created and made are good if 
men will use them aright, and that we dare not be wiser 
than He, or seek to restrain the children of men from 
enjoying the earth which He has given them, with all that 
it affords. 

7. It is well that opportunities of cultivation should be as 
widely available as possible, and therefore it is well that 
the material progress of backward countries should be 
rapid ; it is also desirable that every member of a com- 
munity should have the largest opportunities for personal 
self-cultivation ; subject only to this one condition, — that 
care shall be taken that these opportunities shall not be 
diminished for posterity. This is the motive of a good 
father in providing for his family ; and it ought to be borne 
in mind by a well organised community. But the largest 
opportunities, present and future, involve a maintenance and 
increase of material wealth, and we shall be unwise if we 
endeavour to enjoy the opportunities of the present without 
a due regard to providing greater opportunities, and there- 
fore greater material wealth, in the future. 

Hence, while advocating the largest diffusion of oppor- 
tunities, I feel much hesitation about the wisdom of the 
demand for ' equal opportunities.' Equal opportunities ap- 
pear to imply equality of material wealth ; but this would 
be futile without a further guarantee of equal capacity for 
taking advantage of these opportunities. To take the 



46 Material Progress and Moral Indifference [Ch. 



IV. 



simplest case ; the first few years of a child's life are of the 
highest importance for its future, but some have good homes 
and some have bad; there can be no real equality of 
opportunity unless there is similarity in homes ; unless, 
indeed, all be reduced to equality in a foundling hospital. 
Those who have the worst homes would be benefited, but 
all who might have had it would lose the advantage of a 
mother's care and of family life. Such equality of op- 
portunity could only be obtained by cutting down, and 
depriving some of the best conditions for well-being, without 
thereby improving the lot of the others. We want to give 
larger opportunities by levelling up, and we ought to want 
to do it without cutting dowa. The man who inveighs 
against milHonaires, and desires that they should be treated 
as public enemies to be pillaged, is only giving utterance 
to a greedy, envious spirit, which is ready to cut down the 
opportunities of some in the present, without considering 
the danger of sacrificing the possibility of larger oppor- 
tunities for all in the future. 

Progress in the past has not taken place all along the line 
at once ; those that believe that the advance in the future 
would be better and faster if all ranks of society kept step, as 
it were, are bound to show a reason for their belief. There 
has been an individual use of opportunity here and there, 
which has kindled similar tastes, until the whole of society 
has been leavened ; the world is richer for the art-patronage 
of the trading companies of Florence ; and the musical en- 
thusiasm of some of the wealthy in this country has given 
rise to progress in that art by which our whole generation is 
the better. Material progress is a good thing when it is used 
for such ends ; it is worth seeking because it gives a greater 
possibility of striving for such ends. 



II. Moral Indifference and its Dangers. 

If it be admitted that material progress is a good thing it 
seems to follow by implication that what contributes to such 
progress is also good. There can be no question but that in 



Politics, Art, and Morality 47 

recent material progress capital has been a very great power, 
but it is also true that it is a dangerous power, if it is not 
properly controlled. The story of its action under the Roman 
Republic is a sufficient illustration of this statement, but it 
may be worth while to insist on it at some length. 

1. The capitalist's chief thought is for the security of the 
fund he possesses, and his next will be for as large an income 
as may be ; these are the points that come before him in 
investing his capital. His attention is concentrated on the 
precise bargain he is making, and the indirect effects of that 
bargain are so distant and uncertain that he leaves them out 
of account, and is ordinarily quite indifferent to them. 

Thus the capitalist is quite indifferent to political con- 
siderations in his management of his money. He may be 
prepared to join in an outcry against the manufacturer who 
sends improved patterns of guns to a rival power — say to 
Russia. But he would feel no scruple in lending his capital 
to Russia, and thus giving that rival power the means of 
purchasing the improved arms. There is no great difference 
between the cases, but he is blind to the possible results of 
his own action, and thus is indifferent politically. 

Again, the capitalist is indifferent to artistic considerations ; 
the craftsman may have an honest pride in his work and dis- 
like sending out goods that he feels are not worthy of him ; 
but if there is a public demand for inferior goods, and capital 
finds that they pay, it will not scruple to cater for a debased 
taste and take the profit that accrues. 

In similar fashion it may be said that capital is indifferent 
to the moral and spiritual welfare of those who are employed ; 
it is clear that the directors of joint-stock companies are not 
legally warranted in spending the property of the shareholders 
in building churches or schools. And again, capital as capital 
is indifferent to the manner in which land is employed so long 
as it yields a return. The old-fashioned landlord may have 
an attachment for his retainers, but the mere speculator is in- 
different whether the land produces corn, or sheep, or deer, 
so long as the investment pays. 

2. Yet, after all, these matters, patriotism and good work- 



48 Material Progress and Moral Indifference [Ch. IV. 

manship, and culture, are well worth attention ; to say that 
capital is indifferent to them seems like bringing a charge 
against the owners of capital. But it is not said that they 
are reckless, only that they are indifferent ; it is not contended 
that the power of capital is misused, only that it may be 
abused by mere neglect. There have indeed been times 
when capitalists were not only indifferent but reckless, were 
willing to make a profit out of national disaster, and ready to 
grind the lives out of unhappy slaves. There is no need to 
quicken the sense of danger by hunting for cases of similar 
recklessness now ; it is surely clear that if the higher aims of 
life are habitually left out of account, there is real danger we 
shall suffer. That they are habitually left out of account can 
hardly be questioned ; but before we set ourselves to denounce 
capitalists for this neglect, two points have to be considered, 
— how far the neglect is really criminal.? and next, how far the 
individual capitalist is responsible and therefore to blame? 

3. Much moral indignation has been expended by socialists 
and others on the indifference of capitaHsts ; and demonstra- 
tions are commonly current that conduct in regard to econo- 
mic matters must be judged by standards of right and wrong. 
But this no capitalist, however 'hardened,' would ever deny; 
some conduct in connexion with the investment of money is 
criminal and some is dishonourable, it has an ethical character 
plainly enough, and there is severe punishment for fraud. The 
difficulty is this, — supposing the transaction is above-board 
and public and fair as between man and man, the conscience 
of the capitalist is satisfied, and he does not usually feel 
bound to inquire into the indirect and remote and ulterior 
effects of the transaction. He does not deny that his con- 
duct must be judged by an ethical standard ; but so long as 
it is a fair and open transaction, he feels that he is not called 
upon to indulge in any further subtleties. 

There is a parallel which easily presents itself; no one 
would deny that there is a right and wrong about matters 
of food, but the ordinary conscience is satisfied if its owner is 
neither greedy nor a glutton. The plain man who means 
well does not feel called upon to inquire too closely as to the 



Reasojis of this Iiidifference 49 

qualities of different foods and their bearing on disposition 
and character? how far he will be a more intelligent man if 
he eats fish, or a less passionate man if he abstains from 
meat? These seem to the ordinary man to be over-refine- 
ments, and to show a sensitiveness which is unhealthy and 
morbid. In much the same way the want of patriotism in 
which the capitalist may be involved by subscribing to a 
Russian loan is indirect and uncertain ; it seems to be a piece 
of hyper-sensitiveness to take it into account. And such 
neglect, though it may be disastrous, is hardly criminal ; the 
man honestly feels that he has acted fairly in the matter 
himself, and in the bargain he made about transferring the 
money, and that he is not to be held responsible for the use 
to which other people put it ; the extent of his blameworthi- 
ness depends on his means of knowing, and the reasons 
for believing, that a hostile use could be made of it. 

There are cases, however, where wrong arises directly and 
immediately in connexion with the administration of capital. 
A certain company earns large profits and deals oppressively 
by its hands ; the shareholder secures the profits, say twelve 
per cent., and his capital doubles or trebles in value because 
of the success of the enterprise. But if this business is 
oppressively managed, is he not to blame for receiving 
'blood-money'? In regard to this too, many honest-minded 
individuals will feel no scruple, because they have not the 
time or knowledge to understand the details of the manage- 
ment ; each man feels that his own personal share is small, 
and that he must leave these matters to others. He believes 
perhaps that newspaper criticism is more effective than the 
utterances of a single shareholder at a big meeting ; his per- 
sonal part in the administration is practically nil, and he 
consequently feels no responsibility. 

Even in the case of a man who is sole manager of the 
business in which his capital is invested ; he may be a 
sweater, and know that he is ; at the same time he may 
think, and it may be true, that the public demand for cheap- 
ness is such, and the competition of other sweaters is so 
keen, that his margin of profit is very small, and that any 



50 Material Progress and Moral Indifference [Ch. IV. 

attempt to re-arrange the system on which his business is 
conducted would do no good to the employees, and would 
certainly effect his own ruin. He is hemmed in by a crowd 
of circumstances which keep him from exercising any real 
responsibility as a matter of fact. He may regret the state of 
affairs, but he feels that he cannot help it. 

It thus appears that the enormous power of capital, which 
may work so much mischief, if it is not properly controlled, 
is very imperfectly controlled indeed. Some owners feel no 
responsibility for distant and indirect results, though these 
may be of fatal importance ; some feel unable to exercise any 
real influence on affairs that come under their own cognisance 
and pass through their own hands. It seems under these 
circumstances necessary for us to consider the different 
fashions in which capital is actually administered and con- 
trolled in the present day. 



CHAPTER V. 

The Control of Capital. 

I. The Different Modes of Administering Capital for 
Different Objects. 

It might at first sight seem that the control of capital, like 
the control of other property, would rest entirely with the 
owners of capital, — subject of course to such general rules 
about fair dealing as any government felt it necessary to en- 
force. But the difficulties to which attention was called in 
the last chapter serve to show that the owners of capital are 
not always as a matter of fact able to exercise a complete 
control over the manner in which it is used. Capital is 
sometimes lent to other persons to use, and then the bor- 
rower, not the lender, has the chief voice in directing it ; or 
the force of circumstances may prevent a man from adminis- 
tering it in the fashion he would personally prefer. It may 
be convenient to look at the matter from another side, and 
to see how one mode of managing capital or another may be 
more suitable, according to the purposes for which it is used. 

Capital is, as we have seen, a very vigorous factor in pro- 
moting material progress ; we may try to note a few of the 
chief elements in material progress, and may enumerate them 
in order according as they concern the nation as a whole, or 
larger or similar bodies of citizens. We may thus see how 
the capital that is devoted to attaining one or other of these 
several aims is actually administered. For this purpose we 
may neglect the distinction between borrowed capital and 
capital that is owned by the man who carries on the business 
in which it is employed — a distinction which comes to be of 



52 The Control of Capital [Ch. v. 

primary importance when we have to consider the remunera- 
tion of capital. 

1. Certain elements which are requisite for material pro- 
gress are common to the whole nation ; they are facilities 
which conduce to progress generally. Though some indivi- 
duals may feel the importance of them more than others, it 
is impossible to say that anyone derives no advantage from 
them ; but the benefit can hardly be assessed, as it accrues 
for the most part in the way of preventing mischief, and not 
by furnishing positive gain. The advantage of living in a 
civilised community where there is security for life and for 
the enjoyment of possessions is obvious ; and for commercial 
purposes it is also most important that merchants should be 
able to reside and to prosecute their calling in distant lands. 
In order to procure these conditions, which are so intimately 
connected with material progress, there must be {a) good judi- 
cial administration, {Jf) security from rebellion, war, and even, 
if possible, from the fear of war, and (<:) effective agreements 
with distant powers. Now the two first of these conditions 
are most likely to be secured when people are self-governed, 
or governed by men of their own race, and the last is most 
likely to be secured in the case of a great nation which has 
a high reputation for power. It thus comes about that loyalty 
to the national government, or Patriotism, and care for the 
national reputation, or Prestige, are well worth keeping in 
view as underlying conditions which make for material pro- 
gress. The depression of Greece, Carthage, and Spain when 
they fell under Roman rule, of Granada, Portugal, and Flan- 
ders under Spanish rule, are cases which seem to s-how that 
the loss of national self-government may exercise a very 
malign influence on national industry and commerce. Hence 
it comes about that despite the terrible cost of war, and the 
loss of life and dislocation of industry and trade which it 
involves, it may be expedient to have recourse to war, rather 
than lose that national independence or prestige which are 
such important conditions for material progress. 

Into the moral questions connected with war it is not neces- 
sary to enter here ; it is enough to say that in so far as mate- 



Patriotism and Prestige 53 

rial progress gives conditions wliicli render a better culture 
possible, it is difficult to condemn absolutely any step that 
leads to real material progress and thus to the possibility of 
further moral advance. War that is unsuccessful has no 
material justification ; it exhausts the country without any 
real return, and the moral justification of such war is harder 
to find. It may give a stimulating example of courage and 
bravery which is a possession for all time ; it may be a monu- 
ment of the folly and foolhardiness of some statesman. Even 
if a war accomplishes its object, it may be at a cost which 
proves that it was a curse to the country. The Scottish war 
of Independence was successful ; Wallace and Bruce have 
left inspiring memories ; but it sapped the one constitutional 
power that was able to control a turbulent nobility, and 
checked the development of the country till the time when 
its fatal successes were undone. Such considerations seem 
to imply that war is a desperate remedy, that the greatest 
caution should be exercised before a nation has recourse to 
it ; but they do not show that it is never necessary. Without 
entering on the disputed question as to whether the Napo- 
leonic wars were forced upon us or not, and fully recognising 
their exhausting effects and the pressure of the burden of 
debt they have caused, it may yet be contended that it was 
worth while — according to the terms in which such things 
can be assessed — for Englishmen to pay largely for the con- 
tinued power of self-government, and the material prosperity 
which they have enjoyed through their patriotism and the 
prestige they acquired. 

{d^ With reference to the national life as a whole, it may 
be said that there are certain ideal aims which yet react so 
closely upon material progress that they must be taken into 
account ; in so far as capital is required to carry out opera- 
tions that are expedient for the sake of patriotism or of pres- 
tige, that capital is employed for an object that is common 
to the whole nation, and may be most fitly administered by 
the government of the country. What concerns all is the 
business of all. In the same way it may be contended that 
intelligence and skill are a benefit to the whole community, 



54 The Control of Capital [Ch. V. 

and a benefit which is directly exhibited, even if it cannot be 
accurately expressed, in terms of material wealth. The nation, 
may be concerned both in promoting the advance of know- 
ledge and research and encouraging discovery ; it may also 
concern itself in seeing that the citizens partake in the know- 
ledge which is brought within their reach, and expend money 
on education. In all such matters there may be need for the 
use of capital, and, when this is called for, it is most naturally 
administered by public and national authority, since all are 
concerned in its results. The nation, as a whole, is concerned 
in these matters, and not any one locality only ; and there- 
fore the administration of capital, so far as it is required for 
the defence of the nation, the administration of justice, the 
promotion of the intelligence and character of the inhabitants, 
is naturally entrusted to the power which has the widest sway 
within the land, and which determines our relations with 
other powers. In some cases the maintenance of internal 
communications with different parts of the realm might be 
regarded as an object which distinctly concerned the realm 
as a whole, and should be undertaken by the community as 
a whole. But it is at least arguable that the maintenance 
of communications involves minute care and supervision in 
many districts of the country which are long distances apart, 
and that this work can be best done, not as a centralised un- 
dertaking, but by the separate action of district authorities 
who have the requisite local knowledge. It seems obvious 
that where certain things have to be done, but can be best 
done under local supervision, it is simplest for the central 
authority to work through the local powers and subsidise 
them ; or at any rate to lay down instructions as to certain 
conditions which it is necessary, in the interest of the whole 
state, for each separate district to observe. For the present 
purpose we may be satisfied to insist on the fact that there 
are separate spheres for national and local government, for 
State and for municipal authority, without attempting to define 
these spheres. 

2. There are, however, many conditions for material pro- 
gress whigh can be best attended to by local authorities such 



Municipal and Private Management 55 

as municipalities, not by the State. Such, for example, are 
matters connected with the health of the inhabitants ; this 
is clearly a prime requisite for material progress, but the 
conditions which militate against it, or are required to pro- 
mote it, differ according to -the physical character and even 
the occupations of different localities. The best means of 
water supply, the best methods of drainage, are obviously 
problems which take a different form in different places. 
The deleterious effects of certain gases are felt in the neigh- 
bourhood of chemical works, and smoke is a nuisance of dif- 
ferent degrees of intensity in different towns, and therefore 
they may require' different modes of regulation in separate 
cases. Similarly, provision for public recreation, the forma- 
tion of parks and local museums and galleries, above all of 
baths, may all be regarded as contributory to physical and 
moral health, but as matters which are best attended to by 
municipal rather than State authority. 

It may also be the case that the machinery for technical 
education — unlike that of general education — may be most 
fitly provided for by local authority. The technical require- 
ments of Leeds, with its textile trades, are very different from 
those of Sheffield or of Stoke. And if these functions fall 
within the purview of local authority the municipality will be 
naturally charged with the duty of administering the capital 
that is employed in the effort to promote them. 

3. There is however in this country a strong feeling that 
Government management and municipal management are 
often extravagant, and that in the carrying on of ordinary 
business operations, the supply of material wants of all sorts, 
private undertakings are greatly superior. We frequently 
hear of the cost that is involved in Government dockyards, 
and municipal gasworks give rise to frequent complaints. It 
certainly appears that in those cases where careful attention 
to minute details is specially necessary, the work can be best 
done by a private individual administering the affair himself. 
Market gardening may be taken as a case in point ; the 
supply of fresh fruit and vegetables is not a business which 
the London County Council would be likely to manage better 



56 The Control of Capital [Ch. v. 

than the gardeners who send their produce to Covent Garden. 
It is one of the arts where there is comparatively little scope 
for the introduction of machinery, and where skilful labour 
and attention are the main elements of success. In such 
cases it may be contended that the capital required for carry- 
ing on the business will be best administered by a man who 
is on the spot and keenly interested in turning it to account, 
that is to say, by a private individual who has the capital 
under his own control. Just as there is a sphere where state- 
administration seems best, so there appears to be a sphere 
where personal and individual administration is to be pre- 
ferred. 

4. Besides the enterprises where individual management is 
apparently preferable, there are others where association of 
one sort or another appears to answer best. Many enter 
prises are on such a large scale that no single individual is 
capable of understanding all the detail, and though there are 
some giant industries in the hands of private individuals 
there appears to be an increasing tendency to organise great 
concerns by the association of several capitalists. The 
tendency to turn private firms into public companies, what- 
ever may occasion it, is one symptom of a preference which 
is widely felt. The success of associations of consumers in 
competing with retail shops, or the combination of rival 
houses into 'trusts' so that all the business may be done on 
the same lines, are other symptoms of the change. It appears 
that there are numerous undertakings that can be most 
conveniently conducted by means of associated capital ; and 
it need hardly be added that when any association becomes 
so powerful as to extend to the whole country, such a scheme 
of organisation must have been developed that there need be 
little difficulty in buying out the capitalists and conducting 
the business as a department of state, if this were desirable. 
As a matter of poHcy, however, it may be questioned 
whether the public are not likely to be better served if the 
company retains its separate existence, but is carefully 
controlled by public opinion in the press and Parliament. 

In existing society, then, there appear to be these four 



The Survival of the Fittest 57 

different systems in which capital is administered — State 
managejnent , Municipal management, Private manageme7tt, 
and Associated management-^ and these four systems of 
management appear to correspond to different kinds of 
industry, or different classes of objects, for the attainment of 
which capital is required. In our present regime all these 
various methods may exist side by side, and each undertaking 
may be organised on that method which seems most suit- 
able, or which proves itself most suitable after repeated 
experimeirt. 

II. Is any one Method superseding the rest? 

It is not easy to say, so far as experience goes, which of 
these methods of management is the fittest and is most 
likely to outlive the rest, or whether any one has so little 
vitality that it is likely to be improved off the face of the 
earth within a comparatively brief period. 

1. At first sight it seems as if ' nationalism' were winning 
in the race ; there are certain kinds of conditions which the 
nation only can secure, and there is a steady movement in 
the formation of giant companies and trusts, while consider- 
able pressure is being exercised in the direction of having 
these powerful monopolies overhauled or taken over by the 
State. It appears as if private capital were giving way to 
associated capital, and associated capital were giving way to 
national or public capital, and that if this movement 
continued or were accelerated the whole would pass under 
the direct management of the State. 

a. But there is another change which is also in progress, and 
which must also be taken into account ; business is assum- 
ing more and more of an international character every day, 
and there is more international organisation for commercial 
purposes. The postal union is a case in point, and bi- 
metallists hope to furnish an instance of monetary arrange- 
ments which shall extend far beyond the limits of any one 
sovereign who mints coins for the use of his subjects. 
These are forecasts of attempts to treat the world as a whole 
for commercial purposes, and indeed this is habitually done. 



58 The Control of Capital ICh. v. 

When we examine our food supply it is extraordinary to find 
how much we are dependent on foreign sources not only for 
bread-stuffs, or comforts like tea and coffee, but for fresh 
fruit, butter, and eggs. Rapid communications by telegraph 
or by rail and steamer have revolutionised commerce, and 
enabled us to treat the world as a whole for business 
purposes. Hence the monopolists who are dreaded now 
are not the engrossers who forestalled goods coming to a 
town and who were put down by municipal authority in 
mediaeval times, not the chartered companies or patentees 
who held a monopoly throughout England and who gave rise 
to outcries all through the seventeenth century, but the 
rings and trusts that control the total mass of copper or 
cotton or oil in the world. In such cases there are business 
operations that extend far beyond the limits and control of 
any nation, and the question arises, how far is the nation 
being superseded as the unit for economic purposes? In old 
days the problems were set as practical ones — how may the 
power of this nation be maintained? The subordination of 
the pursuit of wealth to national power was taken for granted 
by the mercantilists ; the power of the nation was the end, 
they studied the means. With Adam Smith too the nation 
was taken as ultimate, and those who have followed him 
have written of nations as recognised economic groups, 
within which there is a free flow of labour and capital. But 
may we not now regard the world as one economic realm in 
which there is an easy flow of labour and capital, — freer 
perhaps than there was within the limits of England in the 
time of Adam Smith? Can we assume that the nation is a 
permanent economic organism, or is it destined to take a 
subordinate place in the economic life of the future, as the 
manor and the municipality do in the economic life of the 
present? 

b. There are other facts which seem to point in this direc- 
tion ; economic policy is no longer guided with reference to 
national objects ; philanthropy has a word to say, and may in 
time come to have greater influence still. There are protests 
against the destruction of native races, and the exploiting of 



Nationalis)n and Cosnwpolitaiiism 59 

subject populations, and a cold-blooded policy of mere national 
aggrandisement could hardly be pursued by any European 
nation now as it was followed in old days by the Romans. 

Further, it appears that the differences between nations are 
being diminished and more connecting links are being forged. 
This is chiefly due to the influence of capital ; English 
capitalists have a large stake in the prosperity of nearly every 
country in the world, and this is to some small extent a 
pledge for friendly relations. The tie is being formed, not 
by commercial intercourse breaking down tariffs, as Cobden 
hoped, but by capitalists who take advantage of foreign 
tariflfs to transfer their enterprise. Besides this, the intro- 
duction of machinery is doing something to put different 
lands more nearly on a level ; there is less specialisation of 
industry, and therefore more possibility for the fluidity of 
labour throughout the world. While on the one hand there 
are signs of the formation of international organisations for 
business purposes, there are on the other hand symptoms 
that the barriers of nationalism— for economic purposes — are 
breaking down. 

Who shall strike a balance between these probabilities, or 
prove the superiority of economic organisation of any single 
type ? On the one hand we have signs of the State under- 
taking more and more economic functions ; on the other hand 
it appears that the existence of the nation, as a distinct 
economic group, is threatened, and that it has far less im- 
portance in the business life of to-day than it had a century 
ago. It is ceasing to be the centre of economic organisa- 
tion, in the way that political economists usually assume, 
though the diminished importance now attached to problems 
of international trade shows that the change is recognised 
even by theorists. However long nations may continue as 
the strongholds of common laws, and common language, and 
common religion, of all the sentiment that binds men 
together and gives a common culture, — and these differences 
show little sign of disappearing, — the nation is no longer so 
clearly distinguished as formerly as a well-marked economic 
group. 



6o The Control of Capital [Ch. v. 

2. At any rate it might seem that the individual control of 
capital is passing away; but is it so? Apart from the 
question of management and attention to details, it appears 
that there is still a field for personal energy in breaking new 
ground. It has been remarked by Mr. Bagehot that one 
reason of the success of British commerce lay in the fact that 
there had never been a great mercantile caste, or great 
mercantile families of the Italian type, but there were also 
interlopers who pushed their way from the ranks and broke 
through the stereotyped habits and old traditions. It will be 
shown hereafter that individual care is also instrumental in 
the formation of capital ; and though with social changes the 
scope of individual management may become narrower than 
at present, it may yet continue to discharge certain functions 
better than can be done by any other method, and to have a 
real, even if a subordinate place, in economic life. The fact 
that many businesses are being transferred from individual 
to associated administration does not prove that the method 
of individual management may not survive as the fittest for 
certain purposes. 

There are many people who are strongly impressed with 
the value of individual energy, and who are constantly 
deprecating any tendency on the part of the State to encroach 
on the free play of individual vigour. They deprecate State 
interference with individuals, and are constanly inclined to 
lay down limits which the State ought not to pass. There is 
one thing that may be said ; the State ought not to try to do 
what individuals can do best for themselves ; but only 
experience can determine, from time to time, how well this or 
that can be done by the State, and how well by individuals. 
The problem as to the respective spheres of the State and 
the individual is not capable of general solution ; the State 
and the individual are not definite things which always stand, 
or ought always to stand in the same relations to one 
another. The individual as he comes into being is formed 
by the State, and is a man with certain rights and conceptions 
because he has been born in a State where these were 
current. The forms of States, too, change — tribal, municipal, 



state Interference and Private Concerns 6i 

national, federal, and so forth ; there can hardly be any 
general economic propositions which will apply to all such 
types of State and all the members who go to form them, and 
under whose influence they are in turn developed and 
changed. 

This, too, one may say ; the objects in which the Govern- 
ment exerts itself are objects in which all the people have a 
part ; it is with national projects that Government is con- 
cerned, and with projects which, just because they are 
national, concern all the citizens. Since they concern all 
they may seem less pressing to each man than his private 
affairs. It is because no man can assess the precise 
advantage he derives from being an Englishman instead of a 
native of the French province of Albion, or assess it in terms 
of money, that the British voter is inclined to subordinate the 
national projects, which concern everybody, to the petty 
interests of his shop, which concern no one but himself. 
And certainly if such a conflict of interests does arise there 
can be no doubt which should be forced to give way. The 
national projects concern the whole nation, present and 
future ; it is far more important that such objects as England 
has in view should be seen to, rather than this man's shop or 
that man's shop should answer. State interference may be 
unwise — it is human to err — but there are objects for which 
the State may have to interfere with individual interests, or 
even individual life, that are of paramount importance, and 
that far outweigh any merely private concern. 

3. There are many grounds for supposing that the munici- 
pality may take a more important place in the future than it 
has recently done in the past. In the thirteenth or fourteenth 
century each European municipality was a separate isolated 
institution, with its own customs and privileges, its own 
relations with other municipalities, and but little share or 
interest in the life of the nation in which it was placed. This 
narrow isolation has been broken down by more frequent 
intercourse, and the exceptional status of certain places has 
been superseded by the common facilities which exist 
throughout whole realms. In our own time there is a revival 



62 The Cojiti'ol of Capital [Ch. v. 

of municipal esprit de corps \ the political power of the 
provincial towns is very great ; the pride of citizens in the 
place of their birth, or the place where they made their 
wealth, shows itself in gifts of parks, and galleries and 
churches and museums. And there is at the same time a 
movement in favour of a decentralisation which may give 
the power of administering capital for objects which have 
been hitherto pursued by the State into local hands. How 
far this decentralisation may proceed with advantage is a 
difficult and disputed question, but it is admitted on all sides 
that the power of peace and war must rest with the Central 
Government ; and hence it follows that the administration of 
capital, so far as this military power is concerned, must also 
rest with the State. The economic functions of the munici- 
pality — in which, for convenience, I include other forms of 
local government — may be greatly increased, but the State 
cannot be altogether superseded, so far as the necessity for 
making provision for this contingency remains. 

There are perhaps some who would contend that if 
separate municipalities were formed, and nations superseded, 
the causes of taking up arms would be diminished, and that 
war may therefore be left out of account. But Plato, who 
framed an ideal state in Greece, where there was no nation 
but a group of municipalities, did not find in his experience 
any grounds for supposing that war could be dispensed with 
in his ideal repubhc. In fact, in such conditions as he knew, 
or as existed later in Italy, there are more frequent reasons 
for war ; more petty jealousies, more trivial rivalries. It is 
easy to conceive that if the control of common national 
interests and rule were removed, Liverpool might go to war 
with Manchester about the ship canal, and destroy the 
budding prosperity of Cardiff or the hopes of Milford Haven. 
Intermunicipal war was waged when there were causes of 
municipal jealousy, and national wars may continue to exist 
so long as there are decided national differences which give 
rise to international irritation. 

Now, though the nation as an economic organism is less 
important than formerly, there are few, if any, signs that it is 



Persistence of National Sentiinents 63 

decaying as a political force. So long as there are differ- 
ences of natural products there will be trade between different 
countries ; and though such interconnexion gives ties between 
distant nations it also may serve to occasion jealousies and 
wars. Very many of the most terrible wars the world has 
seen have been partly, at least, commercial wars ; and so long 
as international commerce remains, there are likely to be 
occasions for misunderstanding and irritation and quarrels. 

National differences, too, which are due partly to differ- 
ences of race and language and religion and history, show 
but little signs of dying out. Some striking evidence on this 
matter is alleged to be found in the United States. There is 
no real proof of closer amalgamation between the black and 
white races in the south. The half castes die out, and the 
pure blacks and pure whites are perpetuated with but few 
signs of fusion. In different parts of the States and of 
Canada, French districts, or German districts, or Irish 
districts, or Scottish districts may be found, and thus the 
national differences of the Old World have reappeared in the 
New. So far as the constitution and government of the 
United States are concerned there has been every effort to 
absorb these separate settlements into a government which 
claims to rest on the freedom and equality of men. Even if 
these different emigrant settlements do amalgamate com- 
pletely in the course of time, we may yet feel that natural 
differences which have been able to reappear in the New 
World are likely to die hard in the Old. The municipality 
may extend its economic powers at the expense of the nation, 
but there is no likelihood that it will supersede it altogether. 

ni. Industrial Organisation. 

We thus are forced to recognise that each of these methods 
of administering capital appears to be able to justify its 
existence, and will probably maintain itself, as the best 
method of fulfilling some function in our economic life. 
Cosmopolitan and international organisations may grow from 
the mere germs we now see, and municipal institutions may 



64 The Co7itrol of Capital [Ch. v. 

expand, but it seems improbable that national economic life 
will wholly disappear ; so too there may be some scope for 
the individual capitalist, however much joint-stock companies 
multiply. 

The present social system gives opportunity for adminis- 
tering capital according to any of these plans, whichever 
answers best ; it also gives freedom for trying a new method, 
if that seems likely to prove preferable. The respective 
spheres of national and municipal and individual and as- 
sociated administration are always changing, as new wants 
or new discoveries affect the organisation of diiferent indus- 
tries. Whatever is likely to be the best means of controlling 
capital, so as to meet requirements then and there, can be 
easily brought into play. 

1. Those who are impatient with the social arrangements 
of our own time are easily able to point out economic defects 
in this or that direction, through the misuse or waste of 
capital. There is a terrible waste which arises in the course 
of reckless competition — in cutting prices and in bankruptcy, 
even in advertising; there is waste, since there does not 
seem to be any adequate return to the community. In the 
same way it is often urged that there is no adequate return 
to the community for all the wealth sunk in land, and that 
landlords' rents and royalties would afford a far more general 
return if they were held by the State or by municipalities. 
There are many who desire to substitute organisation for 
competition, and thus to do away with the recognised evils 
of the present system. Of course, if it is really to supersede 
competition altogether, the organisation must be very 
thoroughgoing and complete, so as to leave no scope for any 
individualistic passions and ambitions, and to call forth 
feelings of quite a different type. This is, briefly put, the 
aim of socialists, and there is much in their criticism of exist- 
ing institutions which shows that there are many faults which 
call for remedy. 

2. We are, however, justified in asking any professed 
socialist what type of administration he suggests as the basis 
for the thoroughgoing organisation which he desires? In- 



The Details of Social Organisation 6^ 

dividualistic and associated administration rest on compe- 
tition ; these are apparently excluded; but does he favour 
cosmopolitan or national or municipal organisation? 

Now, just as it is easy to find flaws in existing social 
arrangements, so it is easy to pick holes in any projected 
one ; and socialistic schemes have had no immunity from 
criticism. To such criticism of details the socialist is apt 
to reply that after all these are mere minor matters which 
could be arranged if the broad outlines of the scheme were 
adopted. This is very true, but it is also true that there 
must be some details; and the fundamental defect in 
socialistic proposals is this, — that whatever scheme was 
adopted it must in some of its details be inferior to the 
present system. The thoroughgoing system must adopt one 
type of administration; whichever type is preferred, and 
carried out with rigid consistency, there would be a real loss 
from discarding the other types, each of which shows itself 
fitted for the administration of certain departments. If the 
national type were adopted there would be loss through 
over-centralisation ; if a municipal type, there would be the 
loss of the control that is exercised by common opinions and 
interests, and the jarring of pretty rivalries and antagonisms. 
In either case there would be a loss of the enterprise which 
displays itself in the individual and associated management 
of capital. 

3. The socialist may contend, indeed, that it is not the share 
of material gain he looks to, but the moral advance. But, after 
all, material progress gives the opporttmity of moral advance ; 
if material progress is checked there will not be the same op- 
portunity for moral advance. Is it possible for him to contend 
that under socialism the lesser opportunities will be turned to 
better account? That it gives a nobler ideal, a better disci- 
pline for the individual, and therefore a deeper spiritual power? 
Those who believe that perfect gifts come from above and are 
received by men will not hope that any new method of organ- 
ising society, any more widely diffused comfort, will in itself 
call forth such noble aspirations, or discipline such unselfish 
characters, as shall help man to rise to a really higher level. 



PART II. 

PRACTICAL QUESTIONS. 



CHAPTER VI. 

The Formation of Capital. 

Capital has been already defined as a fund fi-om which the 
owner expects to get an income. It is not necessary to try 
and justify this definition : it may sufiice for us to use it and 
see how far it justifies itself. Capital is a word in popular 
use ; if we wish to give more clearness and accuracy to dis- 
cussions of popular subjects it is convenient to use the word 
as nearly as possible in the sense which it commonly conveys, 
but to use it with more precision. A great many economists 
have not been sufficiently careful in either respect. They 
have fixed attention on capital devoted to industry, and have 
spoken as if a man's wealth ceased to be capital if it was not 
devoted to the production of more wealth. Thus a man who 
holds brewery shares has capital, but if he ceases to hold 
these shares and buys consols, although he continues to 
obtain an income, he would, according to many definitions, 
cease to be a capitalist. Popular language does not recognise 
this distinction ; the man has capital and changes his invest- 
ment, but does not convert capital into non-capital thereby ; 
and the text-books would have done better if they had tried 
to adhere to popular usage in this matter. But there has 



Social Conditions — Security 67 

also been some confusion, because after fixing on an accidental 
quality to mark out capital, they have not always adhered to 
that definition with precision ; there is an overwhelming 
temptation to extend the use of terms by analogy till they 
are emptied of all definite meaning. We shall do best if we 
define capital not by what it generally does, nor what it 
usually consists of, nor by the manner in which it is obtained, 
but by what it brings to the owner. The owner may make a 
mistake and use it in a way in which it yields no income, but 
he always intends to get an income, and expects it when he 
invests ; and the bringing in of an income is, subject to this 
limitation, a feature which marks all capital, however it is 
got, and however it is used. Taking then this definition, we 
wish to see if we can keep strictly to it, and in so doing dis- 
cuss the various questions connected with the formation and 
use of capital with precision. In so far as this can be done, 
the definition will have justified itself, for its two parts contain 
references to each of these topics, — the formation of a fund 
and the application of the fund so as to get an income. 



I. Conditions for the Formation of Capital. 

You cannot form a fund of wealth unless certain social 
conditions are present, and unless there are certain personal 
powers and certain opportunities. The same conditions 
which are requisite for the formation of any fund of wealth 
at all, will also favour the formation of larger and larger 
amounts of capital, if they are present in increased force and 
effectiveness. 

1. There can be no question of saving up a fund of wealth, 
unless there is some sort of security for enjoying it. Continual 
warfare and pillage must produce a state of society in which 
the possession of wealth is a mere temptation to attack, and 
in many ages men have preferred to appear poor even when 
they really were comfortably off, in order to escape the jealous 
interference of powerful neighbours. The nature of the social 
sanctions which give protection to hoards of property is not 
always very intelligible. Certain Kafir tribes can leave under- 



68 The Fonnation of Capital [Ch. vi. 

ground stores of food in tracts where other tribes wander 
freely, without any apprehension that they will be pillaged, 
though it is not easy to see what gives these pits immunity. 
In the early middle ages, when private wars were so rife, 
kings were glad to commit their treasure to the care of a 
knightly order, and the Temple at Paris served as a bank of 
deposit both for Philip Augustus and for John Lackland. 
Every improvement in government which renders a man^s 
property, be it large or small, more secure to him, gives an 
increased facility for forming funds of wealth. Whether 
this is brought about by greater security from hostile in- 
vasion, by greater immunity from the attacks of thieves and 
robbers, by greater care in the levying of taxes, or by improved 
judicial administration, the result will be the same, and there 
will be fewer obstacles to the formation of hoards of wealth. 

2. But after all these are somewhat negative conditions ; 
there are certain personal qualities which are the active force 
in the formation of capital. Social environment counts for 
much, but it is not everything. Just as we have seen that the 
environment of physical circumstances affects the develop- 
ment of society, while the personal qualities of skill and 
enterprise enable men to take a further step forward beyond 
the limits imposed by circumstances, so it appears that the 
social environment is not unimportant (as it limits the exercise 
of the power of saving, or on the other hand gives it scope), 
but that the mainspring from which additional hoards arise 
is found in personal dispositions and qualities. The man 
who can look forward, who can put off till to-morrow what 
he might enjoy to-day, is the man who forms a fund of wealth, 
and this is the disposition which is the most active and 
operative element in all formation of capital. 

There are many men in whom this disposition is weak ; 
there are others in whom by character and association it 
seems to be wanting, and it differs curiously in different 
races. In India there is a striking contrast between the 
Parsee and the Hindu in this respect. The Parsee accu- 
mulates wealth to use in trade ; the Hindu will gladly spend 
his available wealth and run into debt at some family or caste 



The Effective Desire of Acciimidation 69 

festival ; he wishes to be remembered as a man who behaved 
handsomely, but he has no desire to rise in the world. He 
wants to be well thought of in the circle in which he lives, 
and does not wish to rise out of it. It is not necessary to 
compare these two dispositions from a moral point of view ; 
one may be more sociable and pleasanter than the other; 
and the Parsee is never likely to be a popular man. It is 
enough to point out that the Hindu is less likely to amass 
capital than the Parsee, not because he has less opportunity 
and the social conditions differ, but because his personal 
ambitions and aspirations are of a distinctly different type. 
There are many servant girls whose love of dress is so strong 
that they can't save ; and there are many folk who are unable 
to amass anything because of their love of eating and drinking. 
Personal vanity or greed and sociability may be the grounds 
of present expenditure which interferes with the formation of 
hoards ; and the man who can't save may have many excel- 
lent qualities which are denied to the man who can. He 
may be a good Christian and a kind husband and father, a 
just master, a generous friend, and an accomplished man, 
but he does not become rich or get on. If we leave him on 
one side with this tribute of respect, it is not because we 
disparage him or think more highly of the men who get on, 
but merely because the men who get on and become rich are 
the topic before us, and the other people are not. The 
generous friend who is badly off is a better human being 
than the man who has money but who is not generous and 
has no friends, but he is not the subject in hand. He is 
left on one side not because he is despicable or unimpor- 
tant, but merely because he is irrelevant. His economic 
influence has been already alluded to as most beneficial in 
helping to keep up our ideals, and thus to raise the whole 
social tone of society. We want now to note the disposition 
that is effective in forming hoards, and the man who does 
not form hoards does not concern us for the present. The 
whole series of moral questions may be left over till later ; 
we do not wish to see whether hoards are right, or to what 
extent they are right, or how they are to be formed in the 



70 The Formation of Capital [Ch. vi. 

right place and the right time and with the right end in 
view ; we are merely considering the practical question how 
they are formed at all, and the active force which has most 
effect in this respect is the power of postponing present 
enjoyment for the sake of a larger accumulation in the 
future, — what is commonly called the desire of saving. 

This power of saving involves certain intellectual and 
moral qualities. It requires a certain amount of imagination 
to foresee the advantage which will accrue from the possession 
of a hoard ; this is probably the difficulty with certain savages, 
to whom the prospect of an entirely changed life, with 
diminished liberty, offers no attractions, even though it should 
afford more regular supplies of food. It might be more com- 
fortable, but it would certainly be less diverting. Besides 
this power of imagination, there must also be strength of 
will ; the object in view is a distant one, and there is no 
little difficulty in pursuing it steadily for a long time. This 
is the quality in which children are often lacking ; there is 
no deficiency of power to realise the things they can get by 
saving. A boy desires a pair of pads, and he wishes for them 
more keenly whenever his shins are hit by a fast ball, or 
when he is bowled because he shirked it ; but it takes a long 
time to save, and the attractions of caramels and butter- 
scotch are strong. 

a. But of these two elements, the power of imagination 
and the power of will, the latter is far more important in our 
state of society, or indeed in any state of society where there 
is the hoarding not merely of wealth, but of wealth in a form 
that is fluid and can be applied in any direction, that is, of 
capital. What is required in this case is the accumulation 
of money, — of many coins, or of a sum represented by four 
figures at the bankers, — and that is an object which can be 
grasped by a mind with very little imaginative or poetic 
faculty. On the whole, in our modern life it is in strength of 
will that the secret of accumulation lies, and the man who 
has risen, the self-made man, the successful millionaire, is 
likely to be distinguished by this quality and to value himself 
highly upon it. And sentimentalists are merely foolish to 



The Desire of having a Reserve 7 1 

disparage it because they do not find that it is always accom- 
panied by other moral or intellectual qualities which they 
appreciate better. 

b. In so far however as the desire to save depends on 
power of forecasting the future it is worth while to notice 
that there are two distinct sorts of advantage in the future 
which appeal to men of somewhat different types, or who are 
somewhat differently placed. Some save because they wish 
to have a reserve fund, and some save because they wish to 
have an income, or to have a larger income ; so at least it 
would seem. That the latter is a real and distinct motive 
may be doubted ; on the other hand, it is often spoken of as 
if it were the sole motive for saving. It is surely obvious 
however that the chief motive in saving a hoard is the desire 
to have a hoard to fall back on, and not the desire to have 
an income. The desire to have an income is a potent force 
in determining the investment of capital ; but the man who 
saves, desires to have a fund of wealth apart altogether from 
the way in which he uses it. Thus in primitive times a tribe 
will hoard a reserve of food, as the Germans did in the days 
of Tacitus. So with the artisan who makes small savings in 
the present day; he is anxious to accumulate ;^5o, not 
because he will be so much the better of twenty-five shillings 
annual income, but because he will have a good round sum 
to fall back upon in bad times. The investor must submit 
at times to reductions of income, but he can hope that things 
will take a turn ; what he really dreads is loss of the principal 
or capital. Hence the chief motive in saving is not so much 
the desire to have interest, as the desire to have principal. 
It will yield an income, but it also affords a substantial 
reserve on which it is possible for a man to fall back in any 
case of necessity. 

There are some cases in which the motive for saving 
appears to be that of enjoying a larger income later on. 
This appears to be the case when a man endows his life and 
pays £\^o 2i year for five and twenty years in order to enjoy 
the interest on ^^4000 in the last twenty years of his life, 
>vhen his power of earning is decreasing ; but such postponed 



72 The Formation of Capital [Ch. VI. 

enjoyment of income does not appear to be such an effective 
motive as the desire to have a reserve to fall back upon. 
This is the commonest motive for saving, even in pre- 
capitalist times, and it is a very real motive for saving in the 
present day. It is the motive to which all trades unions and 
friendly societies appeal. They do not give their members 
an annual income, although they exact annual payments ; 
but they do give immunity from anxiety about a greater or 
smaller number of the risks of life. Some will secure a man 
against the losses consequent on ill-health or give him bene- 
fits in old age ; others provide for him in cases where he is 
temporarily out of employment. But the advantage which 
accrues to the memiber is not that of a regular income, but 
of a reserve on which he can draw in any of the ordinary 
emergencies of life. 

This is the real class distinction in the present day; the 
most important distinction between the classes and the masses. 
In old days no one was secure against physical risks ; his 
wealth, however great, might disappear suddenly like that 
of Job, or the Merchant of Venice. But the facilities for 
dividing investment, so as not to put all the eggs in one 
basket, together with the opportunities of insurance and 
obtaining security against various specific risks, are so 
numerous, that it is possible for the rich man to make 
provision for wife and children so as to secure them against 
all ordinary risks of falling into poverty at any period in the 
whole course of their lives. But a considerable portion of 
the artisan classes, and the whole of the unorganised 
labourers, enjoy no such freedom from anxiety ; they rarely 
can see their way clearly for more than a week or two, and 
there are constant risks to health from exposure or accident, 
which may throw them into the extremest poverty at any 
moment. Only those who understand how great this risk is, 
and how much their comparatively small reserves separate 
the organised from the unorganised employees, can realise the 
immense importance for comfort in life of possessing a 
reserve fund, and how immensely important this desire is in 
connexion with the formation of capital. 



Facilities for Saving 73 

The assumption sometimes made that men save, not for 
the sake of possessing a reserve fund but for the sake of 
enjoying income, has been the basis of some argument that 
seems to me illusory. It is said that the rate of interest is 
declining, and that if it gets very low the motive for saving 
will be gone, and that we can look for no more additions to 
capital Even this does not appear to be conclusive ; if the 
rate of interest falls, the man who desires to have a large 
income will have to save more so as to enjoy the annual 
return he desires. If interest falls on the best security from 
3 to 2 per cent, he will have to save ;^ 15,000 instead of 
;^ 10,000 in order to enjoy ^300 a year, so that a fall of 
interest might lead to increased efforts to save. But if the 
chief motive to save, the one which has appealed to human 
beings over the longest period, and appeals most widely to all 
classes of the community, is not the desire to save but the 
desire to have a reserve fund, then a fall in the rate of 
interest will not affect the desire to save at all; this will 
remain as strong as before, and accumulation might continue 
unchecked even if the rate of interest were merely nominal. 
It would only be appreciably affected if men were forced 
to make payments in order to have their hoards securely 
kept for them. 

c. All human beings may be credited with a certain amount 
of imagination, and a certain power of will ; but in many 
these traits are but imperfectly developed. The object of 
the facilities for saving, which are provided by governments 
or by philanthropists, is to render the practice easier to those 
in whom the disposition to save is not strong. The ordinary 
goose club is the least pretentious and most generally 
attractive of all such schemes, for the object appeals to the 
uncultivated imagination ; the necessary saving is not unduly 
prolonged, so that there is no great strain upon the resolution ; 
and the amount of ' present enjoyment' which the man fore- 
goes is overlooked in the attractions of the public house. 
In fact it offers such complete facilities that it hardly calls 
forth the faculty or helps men to form the habit of saving. 

Many schemes for facilitating the habit of saving depend 



74 The Formation of Capital [Ch. vi. 

for their success on the way in which they enable people to 
take advantage of trivial occasions, and thus help them not 
to miss the opportunities of saving that come within their 
reach. It is of course impossible to say how far by providing 
opportunities the latent disposition to save is called forth 
and stimulated ; and those in whom the disposition is strong 
will save on the smallest opportunity. At the same time, 
though we cannot say how much is due to social, how much 
to personal, and how much to physical surroundings, it is not 
clear that the whole of the conditions which affect the result 
can be stated in terms of any one of the three ; but for the 
sake of completeness it is worth while to look at the matter 
from the physical, as well as from the personal and social 
side. 

3. The opportunity to save occurs when a man is in 
possession of a superfluity of wealth of a kind which he can 
accumulate. He can take advantage of a time of plenty, and 
he can take the fullest advantage of it if he can lay up a kind 
of possession which will keep without spoiling. 

a. In regard to the primitive saving of laying up a reserve 
fund of food, it is obvious that it will take place at one time 
of the year, after harvest ; and that, if the population has 
increased up to the limits given by the available food in 
ordinary years, it will only occur occasionally when food is 
particularly plentiful. Without the seven years of plenty 
Joseph could hardly have accumulated a store to serve during 
seven years of famine. 

Similarly in modern times the best opportunity for saving 
occurs at times of prosperity ; if a man counts to get ten per 
cent, on the capital in any business, and he finds that he 
has made fifteen per cent., he is able to put away the sum 
which represents five per cent, on his capital. If he only 
gets his ten per cent, he will keep the business going, but he 
makes no additional accumulations. This is the fact which 
has been noticed by the Manchester school of economists, 
who have laid stress on high profits as a sign of prosperity, 
and treated high profits (and high interest) as a motive to 
the increase of capital. Such a state of affairs does not give 



opportunities of Saving 75 

a strong motive, but it gives an opportunity : everybody 
knows that the high prices and large returns will not last for 
ever, and that the additions to capital will not permanently 
or even long secure an addition to income at this large rate. 
But everybody in business sees that he can lay aside a large 
sum (to be used in his own business or another), and he 
makes the most of the opportunity while it lasts. In this 
way high profits indicate a very real element of prosperity ; 
they show a state of affairs when capital is being accumulated 
by many men, and therefore they show that increased facili- 
ties for industry and commerce are available on many sides. 
When, on the other hand, the rate of profit is low in most in- 
dustries, there may be many men who are anxious to save, 
but who have no opportunity, or no opportunity of saving on 
a large scale. From this point of view we may see that there 
is an element of truth in the position taken by Rodbertus and 
others, who have decried the assertion that capital is the re- 
sult of saving ; no, they say, it is the result of diligence. It 
is diligence which gives a man a superfluity of goods, and 
therefore without diligence he would have nothing to lay 
aside and hoard. Undoubtedly diligence is often, though 
not always, the means of bringing a superfluity into exist- 
ence, and thus it provides the opportunity for saving. But 
there must be the desire of a fund in the future and the will 
to wait for it, or the opportunity which diligence provides 
will be allowed to slip. The virtues of thrift and diligence 
often go together, but for all that the part which each plays 
in the formation of hoards is perfectly distinguishable. 

b. The possibility of amassing wealth also depends on the 
kinds of commodity which are available. Keep a thing seven 
years, it is said, and you will find a use for it, but there are 
some things which will not last very long and cannot be 
kept. It is impossible to hoard milk for long, even when 
converted into cheese, and woollen goods are apt to be in- 
jured ; the Tartar on the Steppes has no possessions which 
will keep, and he cannot be expected to form stores. On the 
other hand, if corn is kept dry and protected from rats, it 
may be preserved without destruction for centuries, as in the 



76 The Formation of Capital [Ch. VI. 

case of the Egyptian wheat; but the precious metals and 
jewels are among the least destructible forms of wealth, and 
they therefore lend themselves most readily to hoarding. 
The precious metals from their divisibility too can be laid 
aside as the opportunity occurs, and the man or woman of 
thrifty habits will be able to accumulate the most trifling 
sums till the stocking or the tea-pot contains a considerable 
amount. So far as divisibility is concerned this holds good 
of any kind of circulating medium, or of the forms of credit. 
The most extraordinary example of this is found in the 
history of the great co-operative societies ; they enjoy a 
plethora of capital, but these large accumulations are chiefly 
formed by laying aside the discounts for cash payments on 
small purchases. The success of these societies is chiefly 
due to the fact that they have given the artisan a new oppor- 
tunity for saving, by enabling him to accumulate the money 
that is due to him for paying cash ; these fractional sums 
are scarcely missed at the time, and can therefore be easily 
spared, but they accumulate to a large amount in the course 
of years. 

There are certain commodities which appear at first sight 
to be specially adapted for saving because they can not only 
be kept, but they actually improve by keeping. It is on this 
account that some men invest in pictures by young and 
unknown artists, in the belief that they will increase in 
value as the men become famous. So, too, first editions, 
early impressions, may all come to have a fancy value, and 
they are on this account legitimate objects of speculation. 
Another instance, which specially attracted the attention 
of MacCulloch, was that of wine, which will, of course, im- 
prove if it is judiciously selected and laid down. But these 
cases rather fall under the investment of wealth than the 
formation of hoards ; they are instances not of saving, but of 
speculation. A poor man may gradually accumulate a very 
valuable collection, by patience and skill, but collectors 
rarely forecast public taste in such fashion as to make their 
favourite hobby pay. The purchase of such objects are 
generally speculations in which men engage who have some 



The Genesis of Capital yj 

wealth, not means of accumulation, and commodities of this 
kind are not by their very nature generally available as 
offering opportunities for saving. They differ, too, from 
other employments of capital, because the owner expects to 
get, not so much an income, as a sum which may be equi- 
valent to many years income ; there is no difference of 
principle between this and any other commercial specu- 
lation ; but the man who tries to get a gain by continuing 
to hold an improving capital must be willing to lie out of 
his capital for a long time. Thus the man who lays down 
;^ioo worth of port sinks his money; he does not receive 
any income from it, and the gain only accrues when he 
realises his investment and sells at a profit; his capital is 
sunk, and just because it is sunk and the opportunity of 
realising it may not easily occur, this form of investment 
is one that many capitalists would eschew. These excep- 
tional cases do not afford opportunities for forming hoards, 
and the gain which comes from them differs in a marked 
degree from the income which is derived from capital. 

c. In whatever way the saving is effected, however, a fund 
of commodities is formed or rights to use commodities are 
acquired. This has, indeed, given rise to the opinion that 
capital has no independent existence as an economic factor. 
Its very existence is said to be owing to previous labour, and 
the profits, it is urged, should go to the labour that made 
it possible. All capital does indeed consist of commodities, 
and labour is an element in the production of commodities ; 
but by insisting on a quality which is common to all 
commodities, we do not get help in distinguishing those 
commodities which are used as capital from those com- 
modities which are not. Without previous labour capital 
could not be formed, for there would be no opportunity for 
forming it; this may be admitted at once, but it is not 
formed by labour alone, but by saving exercised upon the 
results of past labour. Those who were anxious to find 
some external note by which they might exclude land from 
the scope of capital have been apt to say that capital con- 
sisted of the products of past labour, and this has given 



78 The Formation of Capital [Ch. vi. 

rise to the opinion that there is a mere juggle by which a 
portion of the products of labour are somehow, without 
undergoing further physical change, transmuted into a subT 
stance called capital. But this transmutation, though it does 
not affect the physical form of the commodities hoarded, is 
not a mere juggle. Like all other economic and social 
processes, it is primarily due to what human beings think 
and determine ; it is in the mind of the possessor that the 
distinction between capital and non-capital really lies, and it 
is from the purpose of the possessor, and not from the genesis 
of the material he hoards, that the formation of capital really 
proceeds. The possession of material goods renders it 
possible to hoard ; some kinds of goods lend themselves to 
hoarding more easily than others, but they do not hoard 
themselves ; there must be human foresight and human 
determination, or goods will not accumulate. 



II. The Things which Capital Denotes. 

So far we have insisted on the fact that capital is a fund 
of wealth, and have noted the conditions, the dispositions, 
and the opportunities which co-operate for the formation of 
capital. It remains for us to consider how far this view 
of the formation of capital gives us any light in regard to 
property or powers which are in some respects analogous 
to capital, and about which there is much dispute as to 
whether they are capital or not. 

1. Personal Capital. — It is sometimes said that a man's 
acquired skill is his capital. It may have analogies to capital 
in that it enables him to get a larger income, but the analogy 
is with capital sunk in land, not with capital as a separate 
possession. Just as a man who improves his estate gets 
an increased rental, so the man who improves himself gets 
increased wages, but the gain comes as wages, and not as 
income apart from wages. It is increased or diminished by 
the causes that affect the rate of wages rather than by those 
that affect the rate of profits. 

But in any case skill is not a fund. It is not of the nature 



So-called Personal Capital 79 

of a hoard on which a man can fall back in case of an 
emergency ; it is not wealth that can be realised apart from 
the man himself The man with capital who falls into bad 
health and cannot work need not starve, but the man who 
has skill but cannot work will not be able to subsist on his 
skill. And it certainly is not got by accumulation ; by ex- 
ercising his faculties, such as they are, a man learns to use 
them better; but it is by using them and not by hoarding 
them that the results accrue. There may be self-disci- 
pline in acquiring skill as there is in acquiring capital, but 
the opportunities that occur for forming capital will not 
necessarily be opportunities for acquiring skill; it does not 
arise through putting by a surplus. 

In fact, though we habitually speak of a man as possessing 
skill, it may be doubted whether skill is really a ' possession' 
at all ; it is the man who is skilful, his skill is part of himself; 
the term includes qualities of his mind or body ; a man can ex- 
change his possessions for money, and when he does he parts 
with them ; but when a man gains by the exercise of his skill 
he does not part with it; he has it still. The man hires 
him.self, and he receives larger or smaller hire according as he 
is a skilful man or no ; but his skill is not a possession which 
will bring gain apart from himself, or which he accumulates 
by refraining from using his powers, or which supplies a 
reserve fund in case of sickness or accident. The analogy 
to capital is of the slightest ; it is most near, perhaps, in those 
stories of mediaeval gentlemen who sold themselves to the 
devil on condition of obtaining an income and living like 
princes; they used themselves to purchase for themselves 
a terminable annuity. 

There have of course been many states of society where 
human skill was a possession, but just because the human 
beings were not their own masters, but were the slaves of 
their proprietors. A inan may keep a training stable as a 
source of income ; he may devote his capital to the breeding 
and training of horses, and of course he is engaged in a 
business like any other business, and the products he has 
to sell are highly trained horses. In exactly the same way 



8o The Formation of Capital [Ch. VI. 

a man may devote himself to the breeding and training of 
slaves. It has rarely been a remunerative business, as the 
breeders have had to compete in markets largely supplied with 
the captives of war or piracy ; but it was a recognised de- 
partment of rural economy on Roman estates, and Columella 
describes the management of the baby farm as he did that 
of the dairy farm or anything else. At any place or time 
when human beings were recognised objects of exchange 
owned by proprietors, they might be considered as a form 
in which capital was invested, and a gang of slaves is a fund 
of wealth. A gang of highly skilled and reliable slaves was 
a much more valuable possession than a gang of stupid and 
dishonest slaves, and represented a far larger capital. But 
the skill of a free man is not an object he possesses ; it is 
one of his own qualities, and it cannot be properly described 
as part of his capital. 

2. There is still more difficulty about the phrase national 
capital. The national capital would by analogy consist of 
all the national possessions from which the nation expects to 
get an income ; all industry and commerce afford the sources 
whence income is derived, and if all the elements that are 
necessary to carry on national industry are regarded as national 
possessions, the land and the population would alike be con- 
sidered parts of the national capital. It may appear perhaps 
that the citizens cannot be named the possessions of the nation, 
but in so far as they can be called upon to arm in defence 
of the nation, and to risk their lives, they certainly appear 
to be very completely and perhaps unwillingly controlled by 
the nation, and to be used by the nation for its objects. 
They can even be the subjects of exchange, when a piece of 
territory with its inhabitants is ceded to another power, as 
in the recent cases of Elsass and Lothringen, of Savoy and 
Nice, or Heligoland. Just as a man's capital consists of the 
possessions alive or dead, slaves or beasts or steam engines, 
from which he expects an income ; so by analogy the 
national capital might be said to consist of all the pos- 
sessions, alive or dead, from which the State directly or 
indirectly obtains a revenue. 



So-called National Capital 8i 

a. At the same time, when we follow out the analogy in 
this way, it appears that national capital differs so much 
from private capital that it is inconvenient to use the same 
term for both. National Capital, strictly taken, would include 
the land and its conditions of cHmate and soil, the popu- 
lation and its various qualities, as well as the funds of 
wealth which constitute the capital of individuals. It seems 
better to discard a name which may give rise to such con- 
fusion, and to speak of the sources of revenue as the national 
resources rather than as the national capital. The kinds of 
things that can be owned and possessed, and therefore that 
can be parts of a fund of wealth, are pretty clearly marked if 
we confine our attention to individual wealth in countries where 
slavery does not exist. The resources of the nation include 
many things which cannot be thus appropriated by individuals ; 
and it is, to say the least, unnecessary to insist on expanding 
the term capital by analogy to include national possessions, 
which have a sufficiently good name of their own already. 

b. Instead of following out the analogy in the thorough 
manner adopted above, some writers think it convenient to 
use the term national capital for funds of kinds of wealth 
such as individuals might possess — material, exchangeable 
goods. The question then arises whether the national capital 
had best be taken to include the aggregate of individual 
capitals, or whether it shall be limited to the fund of material 
marketable objects from which the nation derives an income. 

If we take it in the larger sense there is considerable 
difficulty in adding up the total of individual capital so as 
not to count the same funds twice over ; this is of course 
due to the manner in which capital is lent. There is a 
danger of reckoning the fund of wealth which Brown uses, 
and then reckoning over again the fund of wealth which 
Smith has lent him to use. Consols represent a large 
amount of wealth lent to the Government ; this is part of the 
aggregate of individual wealth, but it is a national debt and 
not a national asset. The question is still further confused 
by the individual wealth lent to foreign nations. Till such 
difficulties as these are satisfactorily settled on some clear 



82 The Forination of Capital [Ch. vi. 

principle, there can be little advantage in trying to sum up 
the amount of the national capital. In any case ' the aggre- 
gate of individual capital ' is a term which would serve the 
purpose clearly. 

The remaining sense of the term National Capital occurs 
when it is applied to the fund of material marketable com- 
modities owned not by individuals but by the nation, and 
from which the nation derives an income. There is of course 
much national property which does not fall under this cate- 
gory ; the Houses of Parliament and the Tower of London 
may be regarded as national possessions, but they are not 
used as sources of income, except to a limited extent. The 
various naval and military arsenals may be included by a 
stretch of the term, as they save expenditure that would 
otherwise be incurred. Public works like the great irriga- 
tion canals in India are a source of revenue, but the capital 
employed in constructing them is sunk ; they can hardly be 
regarded as a form of capital, but as a form of property in 
which capital has been sunk. As a matter of fact there is 
very little such national capital in any nation. There is but 
little in the way of national reserve funds ; and very little 
national wealth is used for the purpose of securing more 
national income. There are national resources which have 
been improved with capital, but outside the organisation of 
the Post Office there is very little remunerative ' national 
capital ' in England. 

III. The Dependence of the State on Borrowed Capital. 

It is worth while to insist on this point, for it appears that 
when a nation wishes to have capital with which to improve 
its resources it is forced to rely on the capital of private 
individuals. It may borrow the money, as is commonly done 
now, or it may grant certain concessions to a capitalist or 
capitalists as the Romans did. But such capital, though 
applied to national purposes, has not ceased to be individual 
capital. It is, after all, a fund which has been saved by 
individuals : the property is vested in individuals, and in- 



Formmg Capital or Borrowing it 83 

dividuals derive an income from it, though the nation expects 
an advantage which may or may not be measurable in terms 
of money. 

1. The fact that tlie nation depends so much on obtaining 
the use of their capital from individuals raises an interesting 
question as to how far a nation as such is likely to be able to 
accumulate hoards and form capital at all. There have of 
course been large accumulations of treasure acquired by 
governments at particular times, but that was for the most 
part due to special efforts on the part of an individual 
monarch like Henry VII, or special opportunities like that 
which enabled Bismarck to secure a vast amount of gold at 
the expense of France. There have been monarchs who 
have been able to impress their thrifty disposition on the 
policy of the realm, and there have been statesmen who 
have seized the occasion of some military triumph to amass 
a reserve ; but such monarchs and statesmen have been few. 
The spoils of war not infrequently slip through the hands of 
the successful soldiery in unproductive consumption, and the 
motives which most generally call forth saving do not greatly 
appeal to nations in their corporate capacity. The failure of 
sinking funds and the slow progress made in the reduction of 
the national debt during a period of unexampled prosperity, 
show, only too clearly, that there is no strong enthusiasm for 
relieving posterity from the burden of debt; far less are 
there signs of any desire to maintain heavy taxes in the 
present and so accumulate a reserve. It is not easy to get 
the populace to do anything for posterity, for posterity has 
never done anything for them. Hence a desire to form a 
reserve, which is the effective motive in the formation of 
private capital, does not appeal to the national imagination, 
and it is difficult to keep the national will at this pitch of 
heroic self-sacrifice. So long as there was an absolute 
monarch who desired to found a dynasty, the motive for 
accumulating treasure was similar to that of the private 
individual who wishes to provide for his family ; but nations 
have not very frequent opportunities to save, — they hardly 
feel the motive at all. 



84 The Forination of Capital [Ch. vi. 

2. This speculation as to the power of nations to form 
hoards which can be used as capital is an important point 
for socialists to take into account. The so-called nationali- 
sation of railways, in so far as it has taken place, has been 
effected, not by the extinction of private capital, but by 
borrowing private capital to enable the nation to buy out 
private owners. Of course the affair can be so financed that 
the claims of the national creditors should be gradually paid 
off and the railways remain with the State; but supposing 
the existing means of production were thus nationalised, is 
it clear that the State would be able to do more than keep 
them going? Would it have the motive and the opportunity 
for forming capital as a reserve fund, i. e. to be drawn on 
for the expenses of government in case of the revenue falling 
short, or for the purpose of attempting new enterprises? 
The State has often had to rely on Jews or Lombards or 
other bankers in order to pay its way, or to meet expenses 
while taxes were being collected ; would it be so organised 
as to dispense with occasional aid from capitalists, or would 
it be able to form large reserve funds for itself ? Experience 
seems to show that the State will not easily develope a faculty 
for saving; and that just as the private capitalist may al- 
ways survive as the most efficient administrator where there 
are many petty details to be looked to, so too he will survive 
as the organ by which new supplies of capital are most 
readily formed, even though when formed this capital should 
be borrowed by the State and used for public purposes. 



IV. The definition reconsidered. 

1. A brief retrospect may enable us to test the definition 
with which we started, and see how far it has given us a 
distinct idea of the nature of the economic power we are 
about to examine in some detail. It is in some ways a 
narrower use of the term than is current in text-books ; for 
it hardly seems worth while to retain the division ' national 
capital ' at all when we discard that term as a name for 
national resources, and for the aggregate of private capital ; 



Misleading Analogies 85 

there is very little to which the term can be applied. So 
far as the nation uses capital it relies on private capital, and 
additional supplies of capital are forthcoming, not from the 
savings of the State as such, but from the funds of wealth 
accumulated by individuals. In fact the phrase appears to 
have been invented not as the name of any observed phe- 
nomenon, but in order to give completeness to the subject, 
and because the ordinary analysis of wealth seemed to 
require it. ' If capital,' it might be urged, ' is a requisite 
of the production of wealth, and there is such a thing as 
national wealth, then there must be such a thing as national 
capital to produce it.' Such appears to be the argument, 
but capital is not always necessary to the production of 
wealth, and even if it were, national wealth might be pro- 
duced by the use of private capital. A similar ratiocination 
may have given rise to the inconvenient phrase ' personal 
capital,' — the labourer produces wealth, but if capital is a 
requisite of production, there must be capital somewhere ; 
and so that name is sometimes given to the labourer's skill. 

2. It has been my endeavour to steer clear of these 
dangerous analogies, and to keep to the common-sense mean- 
ing of the term. What may perhaps seem least defensible 
in popular phraseology is the manner in which capital sunk 
in land is treated as merged in land, and lost in land, and 
therefore not as capital at all ; but at least it may be said 
that there is some confirmation for this view of the case. 
The moneyed interest of capitalists is generally distinguish- 
able, and often opposed to that of the landed interest, because 
the one has a much more permanent stake in the country 
than the other, and is interested in developing the resources 
of the estate, or in enjoying it, not merely in deriving income 
from it. The conditions which favour agriculture may not 
be suitable for industry and commerce ; there are real 
economic differences, to which is due a conflict of interest 
that has broken out over and over again, from the time when 
the distinction was first noticed in parliamentary politics to 
the great struggle over the corn laws. But the capitalist 
who retires from business and sinks his capital in land is apt 



86 The Forinatioii of Capital [Ch. vi. 

to pass over from the moneyed interest to the landed interest ; 
his tastes and wishes and expectations take a different 
character. And hence while it is true that capital which is 
sunk in land is still wealth, it is also true to say that since 
it has been sunk in land it has ceased to be that kind of 
wealth which is ordinarily called capital, and that the income 
it affords to the landlord, which we call rent, is governed by 
very different principles from those which explain the varia- 
tions in profit or the interest on loans. 

{a) Mill has pointed out that the distinction between capital 
and non-capital depends on the intentions of the owner, and 
the application of this principle requires that a distinction 
should be drawn between ' Capital' and ' Land,' even though 
both are in a sense wealth, and both afford income. The 
landlord in England does not in a usual way work his estate 
for income only, but partly as a means of social enjoyment, 
and as giving prestige and so forth. He embellishes and 
improves it, and spends, in planting it, money which he never 
expects to see again, but which may provide a valuable 
possession for his son. The whole range of motives and 
interests is different from that of the millowner, who is trying 
to push his trade, and who buys a bit of land, the site of his 
mill, with the view of using it in connexion with his business. 
The difference lies not in the things owned, but in the 
intentions of the owner, and the way he deals with them. 
There are many men connected with the land who are 
capitalists ; farmers who work for an annual return in a sale- 
able product, speculators who pick up properties in the hope 
of selHng them again at a profit, and their economic action is 
closely allied to that of other capitalists. There may be 
landlords who work the estate simply as a pecuniary specula- 
tion, and who have no interest in the land except as it yields 
an income in money ; but so long as this is not generally the 
case, and the motives which actuate a landowner are very 
distinct from those which actuate manufacturers or merchants, 
there is a justification for the popular usage which classifies 
his property under a separate heading. It is further confirmed 
by the fact that the genesis of economic rent is so different 



The Intentions of the Owner 87 

from that of interest on loans or reward for enterprise, and 
that the value of land accrues so differently from the increase 
of capital that the two must be treated apart. Land might 
be described for economic purposes as a property in certain 
natural materials or powers which the owner continues to 
hold partly for enjoyment and partly for the sake of income. 
It therefore does not exactly fall under either half of the 
definition of capital. 

(^) Mill's principle calls attention to a point of fundamental 
importance. It is true that capital consists of material 
things, and not of mental powers, but it is also true that 
material things have not the property of being capital in 
themselves. They have no economic property in themselves, 
but only in relation to human beings ; a thing has no use in 
itself, but only if there is someone to use it ; it has no ex- 
change value in itself, but only if there is someone who wishes 
to obtain it in exchange ; there is no intrinsic usefulness or 
intrinsic value in any material commodity. And in the same 
way there is no intrinsic quality that renders any commodity 
capital ; whether it is capital or not depends on the man who 
owns it. The distinction could only be drawn with certainty 
in all cases if we knew exactly the views and intentions of 
each owner, but it is precise, so far as our knowledge of 
circumstances enables us to apply it. That which is not a 
material possession cannot be part of a hoard, and so cannot 
be capital ; but as the forming of a hoard depends on 
personal qualities, and as the use of a hoard as capital 
depends on personal preferences, the distinction between 
capital and non-capital can only be clearly stated when we 
fix our attention on the minds of the possessor and not on 
the things he possesses and uses. If he uses his wealth as 
part of a fund from which he hopes to obtain income it is 
capital. If he sinks his fund in lands so as to obtain more 
rent it is sunk capital, and it gives an improved estate. If 
he uses it to get a better education it is sunk in his own 
improved faculties, and he can earn higher wages ; but in 
neither case does it remain as capital. 



CHAPTER VII. 

The Investment of Capital. 

I. Xieuding Money and Engaging in Enterprise. 

Though capital is wealth which can be realised in money 
and transferred, it does not usually consist of money, but of 
other forms of wealth in which it has been invested. We 
may leave out of account for the present those kinds of 
wealth in which it is sunk, and from which there is no ex- 
pectation of getting a regular, but only an accumulated 
income, — improving properties, such as building-land or wine ; 
in these a wealthy man may speculate, but he locks up his 
capital and does not look for annual income. We merely 
want to consider the investments at which a man will look 
who is anxious to obtain an income without sacrificing his 
principal ; and it is obvious on the face of it that he will 
expect to get some return. Stated in most general fashion 
it appears that there is a superior attractiveness about having 
a thing now, rather than having it next year. The child who 
is asked whether it would rather have an apple now or two 
apples next year would probably prefer the apple now ; and 
the man who lends his money or invests his money now will 
only consent to do it because he counts on having more 
money or a bigger stock of goods next year. Ordinary 
human nature is like Passion, and desires its good things now : 
it requires an extra inducement to act like Patience and wait 
for its good things till a future time. Capital is the fund of 
wealth ; income is the extra inducement which proves suffi- 
cient to make a man use his hoard as capital. It is not 
necessary to consider now whether he ought to be paid for 



Lending Money on Security 89 

doing so, or whether time is one of the gifts of God for which no 
man has a right to charge. It may be enough to say on this 
matter that he does not cliarge for time, but by time and in 
terms of time for the use of his capital. The question of 
right and wrong will be touched on below, and all that has 
to be considered here is the practical matter ; men will not, 
as a matter of fact, lend or employ, and so lie out of, their 
money, unless they have not only satisfactory assurance that 
their wealth will be restored to them in e.g. a year's time, 
but also the extra inducement of something more in the 
future than they have now; not only capital but a year's 
income. Even in days when the taking of interest was 
forbidden the justice of this feeling was fully recognised, for 
it was universally held that to lend on good security, without 
interest, was a piece of charity, a virtuous act, and one in 
which some amount of sacrifice was involved. 

There are, however, two different ways in which a man 
may use his capital so as to get an income ; he may lend his 
capital and bargain for interest, or he may employ his capital 
in expectation of a profit. 

1. If he lends his capital, he simply has as a man of 
business to take account of the borrower, his probable ability 
to pay interest and to repay the loan. He may not feel sure 
as to the borrower's ability to do either one or the other, 
especially if he is lending to a poor man, and in this case 
{a) he will require security of some sort before he makes the 
loan ; or he may feel doubts about the borrower's honesty, 
and his willingness to pay when he can, and in this case also 
he will require security. When the Templars in France 
agreed to pay King John a sum of money in England in 
silver, they first made him pay an equal sum of gold into the 
Temple treasury at Paris. The excellent Bricstam, who made 
gratuitous loans to the needy, was obliged to take pledges 
from them because they were so very careless about paying 
him back. The man who is wealthy can borrow easily, 
because he has property he can pledge; and the wealthy 
man with a good character can get loans on very easy terms 
indeed. 



90 The Investinent of Capital [Ch. vil. 

{b) In modern times we find that great bodies like munici- 
palities and states, which have powers of levying taxes 
and can borrow on the security of the rates, are able to 
borrow most easily, and as they are anxious to continue to 
do so, they are careful to keep a good character for the 
punctual payment of interest. So, too, wealthy landowners 
can borrow on mortgages, and great railway companies find 
that the easiest way of obtaining capital is by issuing deben- 
tures and borrowing on the security of the property of the 
company as a going concern ; and hence there is a very 
large amount of capital which is invested in this form, and 
lent on more or less satisfactory security. 

One curious consequence is that since public bodies are 
so wealthy and so punctual in payment they can borrow on 
particularly easy terms. Hence the Government can obtain 
the use and control of additional capital more easily than any 
one else — at 2| per cent. Similarly, big companies and 
wealthy firms can borrow more, and more easily than smaller 
ones; they can get the command of additional capital on 
easier terms. This gives the large employers a great advan- 
tage over small ones in the struggle for existence, and it gives 
public bodies a distinct advantage over companies in carry- 
ing on any undertaking. So far as management goes, public 
bodies are apt to be extravagant ; but so far as the terms on 
which they obtain the use of capital are concerned, they can 
do it exceedingly cheaply. One of the incentives for the 
municipalisation of gas works and water supply lies in the 
fact that the town can procure the necessary capital on easy 
terms. 

{c) It is of course private capital still; the borrower 
merely has the use of it, and will have to repay it ; but so 
long as there are many private individuals with funds of 
wealth, the Government or local bodies can procure capital 
on easy terms, and use it as if it were their own. There is 
on every side a tendency to rely in business on the use of bor- 
rowed capital, as we shall see below. Borrowing is the easiest 
way to get capital ; and lending is with many capitalists, 
especially trustees, a favourite form of employing money. It 



Profits from Enterprise 91 

is so very free from risks ; the capitalist lends his capital, he 
does not hire it out as the landlord hires out a farm or a 
house. The house will be somewhat deteriorated — he gets it 
back subject to reasonable wear and tear ; so too with the 
farm and its buildings. But the capitalist does not hire out 
a piece of property expecting to get back the same piece of 
property slightly worn but unimpaired ; he lends a certain 
amount of value expecting to get back the same amount of 
value when the loan is repaid ; he bargains himself out of 
risks so far as the diminution of his principal is concerned. 
Many capitalists, too, like to know what they can count upon 
in the way of income ; they are willing to accept a very 
moderate return for their capital, if they are sure to get it 
regularly and to be spared the discomforts which arise from 
the difficulty of adapting their mode of living to a fluctuating 
income. It is, therefore, in many ways a favourite mode of em- 
ploying money. The capitalist does not much trouble himself 
about the reasons why any government or company or indi- 
vidual wishes to borrow, or what use is made of the capital 
he lends ; it is usually enough for him if he sees his way to 
get repaid his principal without depreciation, and to obtain 
an annual return that he can count upon with regularity in 
the form of interest. 

2. There are other capitalists who employ their money in 
the expectation of profit ; they may get considerably larger 
sums than those who are contented with interest, but they 
have also to undertake risks which the lender bargains him- 
self out of. There is the risk of depreciation of the capital 
itself, and the uncertainty as to the amount of return that will 
accrue in any given period. It may be large or it may be 
small, or it may be nil ; but whatever it is, it is pretty sure to 
vary, and not to continue steady for a considerable period as 
interest does. It is thus a very diiferent thing from interest ; 
the two are often, though not necessarily, connected, as the 
lender in nine cases out of ten is able to get his interest 
because the borrower has used the capital lent him so as to 
earn a profit. Profit often lies behind interest : but the 
bargain for interest is different in many ways, from the 



92 The Investment of Capital [Ch. VII. 

enterprise of those who are looking for profits, and the two 
kinds of emiDloyment for money are perfectly distinct. 

There are two different ways in which the possibility 
of profit seems to arise ; though they are often combined 
together, still they may be stated apart. One lies in the 
improvement of natural processes, the other lies in the 
employment of natural forces so as to save time ; the great 
difference between agricultural and industrial or commercial 
pursuits seems to rest on this distinction. Of course, as Mill 
pointed out, all human labour consists in putting things in 
such places as to bring natural forces to bear on materials 
furnished by nature ; but in some cases we cannot hurry 
natural processes, we cannot get two wheat harvests in one 
year off the same land in England. The arable farmer cannot 
turn his capital over more than once a year. But in com- 
merce and manufactures capital may be so used as to save 
time ; every application of natural forces which brings about 
a saving of time is a gain to the public, and to the capitalists 
who cater for the public, as they may turn their capital over 
many times in the year. 

{a) The art of the farmer is to combine natural processes 
in the most profitable manner. The natural process which 
results in the production of wheat will exhaust the soil ; he 
can stimulate it by bringing into play the natural process of 
fertilisation which is effected by manures, or he may give 
scope for the natural process of recuperation which takes 
place when he follows a rotation of crops or lays down a field 
for pasture. By high farming he will get more produce out 
of the land in the course of the year ; but he will not get a 
corn crop ripened more than once a year. He improves the 
production, but he does not make the process of production 
more rapid. 

((5) On the other hand the whole work of the capitalist, 
manufacturer, or merchant consists in making the process 
more rapid. The single labourer can make looo pins by him- 
self and with tools he can handle himself; but he will make 
looo pins in less time by the division of labour which capital 
facilitates, and by the introduction of machinery which 



Biismess on a Large Scale 93 

capital provides. Manufacturing industry lias been so often 
taken as the typical form of capitalist production that 
economists are inclined to treat this as a sufficient account 
of the function that it provides intermediate products, and 
thus brings to bear all sorts of forces that can be made to 
facilitate or to hasten production. 

The capitalist with a considerable business connexion can 
cater for distant markets, and can therefore manufacture on 
a larger scale ; he is therefore able to employ more hands 
than the man who has only a small shop ; he can arrange to 
have the division of labour carried further, and this is a great 
saving of time. More can be done by dividing the labour 
and assigning each man a special task in which he attains a 
high degree of skill. Every business man would like to 
enlarge the scale on which his business is done, but he is 
limited by his capital ; he must have so much wealth invested 
in materials and so much in buildings and tools, so much 
money to pay his labourers wages, and he cannot work on 
a larger scale without more capital to use in one or other, 
perhaps in all these directions. Capital is a requisite of 
production in modern society, where manufacture is carried 
on for sale and with distinct reference to the size of the 
market, and without it the division of labour cannot be 
introduced or carried further. 

It is equally clear that the use of machinery gives a saving 
of time ; it enables the man who has a machine to produce a 
greater quantity in a given time, or each article produced 
involves less expenditure of time. If he can make 300 
pairs of boots instead of 100 in the course of a year, with the 
use of a machine, the machine saves two years of time. 
Tools are means of saving time, and the better the tools are 
the more quickly can a piece of work be done. By the 
intervention of capital there are improved facilities given 
for natural processes or there is a saving of time in the 
production of goods, and this is the source from which the 
profit comes. 



94 The Investmetit of Capital [Ch. vii. 

II. The Flow of Capital and the Machinery of Investment. 

1. It is already clear that the differences between human 
beings are such that some capitalists may prefer to lend and 
obtain interest, while others invest in the hope of getting a 
profit. There is somewhat less of fluidity in capital invested 
than in capital lent ; it may in many cases be very much 
harder to realise. In the investments and securities which 
are transferred on the Stock Exchange, and the shares of 
which are quoted from day to day at a market price, there 
are differences which render some attractive to one class of 
inventors and some to another. 

a. One man may like a large income and take the chances 
of ultimate loss in the belief that he will be able to realise 
before any serious mischief occurs. High profits are sure 
to attract capital to any particular industry. It has already 
been pointed out that secured high profits give the oppor- 
tunity of forming capital fast ; it is also true that high profits 
in any employment attract a flow of capital to that employ- 
ment. Those who are in the trade already can borrow easily, 
and others think that this trade is a promising field for 
enterprise and start in it. 

b. But it is also true that some men will invest in a par- 
ticular stock not because the dividend is high — there may be 
no dividend at all — but because the price is low, i. e. because 
they expect that in a few months or years the enterprise 
will pay or pay better. Anything is worth buying if you can 
get it cheap. And the man who has faith in some project 
may be induced to invest in it largely when the price is low. 
If the industry revives, the rate of profit will be good, and he 
can realise his capital at a much higher figure. 

The same sort of thing may be seen in other cases ; during 
a period of great depression in the cotton trade in Lan- 
cashire it was noticeable that new mills were rising in all 
directions even when the existing ones were running half 
time. Those who believed that the trade would recover saw 
that a time of general depression was one when prices of all 
sorts were low, when building could be done on very easy 



The Motives of Ijivestors 95 

terms, when engineers were ready to supply machinery at 
little over cost price, and so forth. It therefore became 
possible to build and fit mills with all the newest improve- 
ments on specially advantageous terms, and the men who 
had faith in the future of the industry took the opportunity 
of bad times to invest more largely than before. 

There are here two different types of mind ; in both cases the 
' desire of wealth ' is the motive force, but in one case it is 
the desire of as large an income as possible now, in the other 
it is the desire of an improving property. One man invests 
for the sake of a high return, the other invests in the hope of 
increasing his capital. 

c. Men will be affected in different ways by the possibility 
of understanding the details of the business in which their 
money is engaged. Many capitalists unite the actual man- 
agement of some business with the employment of their 
capital ; they prefer to put their money in a business they 
themselves understand, as they know more clearly what are the 
real risks and net profits of the trade. - In such cases there 
are individual tastes and preferences that limit the free flow 
of capital. The nearness or the distance of the property 
concerned will affect them, inasmuch as they feel they can 
get little full information about an enterprise in distant lands ; 
and the uncertainty of the view which may be taken of 
shareholders' or bondholders' rights by foreign courts will 
also prevent capitaUsts from looking eagerly at such invest- 
ments. But, after all, there are always men who will take 
the risk if they see a high profit, or fancy they can buy 
cheap ; there is a slight barrier, but a very slight one, to the 
free flow of English capital to the most distant places and 
the least settled territories. The capitalist is indifferent to 
the direction in which he invests so long as he is likely to be 
able to control, or at least to realise, his principal and to 
secure a return as income. 

2. There exists in the present day a very elaborate ma- 
chinery by which capital is transferred from one employment 
to another. 

{a) Capital when newly formed probably shows itself 



96 The Investinent of Capital [Ch. Vli. 

in the form of a large credit in the owner's account at 
his banker's, and while it is lying there it is available for 
temporary advances to those who need it. The banker is a 
money-lender on a large scale, and the man who wishes to 
borrow capital in order to extend his business, or to tide over 
a temporary emergency, can do it most easily through his 
banker. It has been already seen that the forms of credit 
are convenient aids to the formation of capital, and they 
certainly afford every facility for the transfer of capital into 
the hands of those who are able to use it. If the balances of 
customers with their bankers are large, the bankers will be 
able to lend on easier terms ; everybody who sees a prospect 
of driving his trade will be able to procure the necessary 
capital with unusual ease, and trade will be stimulated every- 
where. 

{b) It is also through the banks and bill-brokers that capital 
is transferred to foreign lands. If a railway is being built in 
Turkey by English capital, wealth will be transmitted in the 
form of English exports to Turkey for which no equivalent in 
goods will be brought here ; the equivalent is being con- 
verted into a railway on Turkish soil; similarly when the 
railway is made and the profits or interest are being trans- 
mitted to the English shareholders, there will be imports of 
Turkish goods into England for which no equivalent in goods 
is exported. The value of the capital and the value of the 
interest are alike represented by bills, and these bills can be 
met in many cases by goods which are transferred in the 
course of trade without the export and import of large sums 
of money. But it is unnecessary to dwell here on the deli- 
cate mechanism which has been so well described by authori- 
ties like Mr. Bagehot and Mr. Rae. 

{c) The whole Stock Exchange exists for the purpose of 
enabling capitalists to transfer their capital from one invest- 
ment to another. As an institution it has many critics; 
much of the business that is done upon it is of a highly 
speculative character, and those who gamble may be led 
into other vices. But, apart from its bearing on individual 
character, it is said that many of the dealings on the Stock 



The Stock Exchange ^y 

Exchange are of an unsocial character. In other transactions, 
it is said, each of the parties to an exchange gains, and there 
is therefore a social advantage from the fact that the exchange 
takes place ; but on the Stock Exchange one man's success 
is simply and directly another man's loss, and each man gains 
at somebody else's expense, and therefore as an economic 
institution it is thoroughly bad. We are not concerned at 
present with the morality of the Stock Exchange, or the 
limits of legitimate speculation, but simply with the practical 
question of its actual working and its effects on the adminis- 
tration of capital. 

It may be noticed in passing that the statement that one 
man's gain is another man's loss is only true in degree ; that 
in so far as men have different motives in investing, what has 
ceased to be a desirable property for one man may have 
come to be a desirable property for another, and each by 
exchanging may obtain something that they want more than 
the thing they had. But after all the social advantage of the 
Stock Exchange does not accrue from the combined gains of 
individual dealers ; it arises from the fact that by their 
dealings — speculative dealings, it may be — they keep the 
market going for capital, so that the man who desires to 
invest can easily get the sort of thing he wants. If there were 
no Stock Exchange with speculative transactions there would 
be far less facility for the transfer of capital, and far greater 
difficulty in finding the necessary means for floating new 
enterprises. 

3. It is undoubtedly an enormous social advantage of a 
practical character that there should be easy means of 
transferring capital to those persons or places who can make 
it most serviceable, and who are therefore best able to pay 
for it. It is an immense practical benefit that progress should 
not be hampered, but that the enterprising man should be 
able to float some ingenious project. But while these 
advantages are fully recognised, and while they appear to out- 
weigh any minor evils that accompany them, it is yet worth 
while to remember that there are accompanying disadvantages 
of a practical kind. 



98 The Investment of Capital [Ch. VII. 

{a) In the first place, the great facilities for floating well- 
planned enterprises also render it more easy to float ill- 
considered and fraudulent enterprises ; they pave the way for 
the most profitable employment of capital, but they also lead 
to a very great waste and destruction of capital — a matter 
which need only be mentioned here as it is examined at 
greater length below. 

ip) In the second place, the very fluidity of capital appears 
to intensify the great industrial evil of the present day ; this 
lies in the extraordinary fluctuations of trade. One year men 
will be working many hours a day at over-time wages, and in 
the next year things are slack ; they work half time or get 
paid off altogether. Temporary high profits in any trade 
lead to the rapid formation of companies to carry on this 
kind of business, and the rapid production which ensues 
leads to a glut and to depression. So, at least, it is said ; 
how far this mischievous tendency has really occurred to any 
considerable extent, how far it is connected with the Stock 
Exchange, and not with the formation of small companies, 
which never come to be quoted at all beyond the localities 
where they are formed, are matters on which it is impossible 
for an outsider to form an opinion. Similarly, it is not easy 
to say how far the Stock Exchange as an institution is 
responsible for the waste of capital ; or how far its regulations 
have checked such frightful waste of capital as occurred in 
the days of the South Sea Bubble. It may be enough to say 
that the practical advantage of giving great fluidity to capital, 
and of bringing it to bear in those regions where it can work 
more effectively, is very great ; and the onus of proof appears 
to lie with those who believe that this social gain is more 
than counterbalanced by accompanying evils. 



III. The Increase of Borrowing and its Effects. 

So far we have considered the investment of capital and 
the machinery by which it is accomplished. We have tried 
to break up the ' desire of wealth ' into its different elements, 
and to show how the play of distinct motives affects the 



Public Borrowing 99 

investment of capital in various ways. The most complete 
explanation we can hope for is obtained when we have found 
the spring of action which influences the owner to prefer one 
mode of employing capital to another. There seems to be 
reason to believe that the convenience of the public and of 
many who possess capital is best served when the owner 
does not employ it himself but lends it to Government or to 
companies ; and that the practice of borrowing capital is on 
the increase. In closing this chapter it is worth while to 
point out that the practical issues we have been considering 
seem to show that tendencies are actually at work in the 
present day which have a very close connexion with some of 
the social problems to which allusion has already been made, 
and with some of the ethical questions which will be discussed 
below. At the risk of some iteration, which may appear 
unnecessary, it is worth while to indicate here how they 
arise. 

1. The large investments of capital in foreign lands form 
international connexions, and give rise to cross-relationships ; 
they do something to break down the strong nationalism of 
old days. The possession of capital abroad gives English 
citizens a stake in the prosperity of other countries ; they no 
longer regard them as mere rivals. Nor is this effect 
confined to owners of capital only ; for the antagonism to 
capital in distant lands rouses a sense of sympathy in the 
labouring classes everywhere, and international agitation 
becomes possible. One of the great obstacles to socialism 
has lain in the existence of national rivalries and jealousies, 
and the more those jealousies fall into the background the 
less impossible does some sort of international economic 
organisation appear. The opinion has been already expressed 
that though national differences are less important econo- 
mically than they were, they are still so real that it is absurd 
to leave them out of account, even in regard to economic 
affairs. But though this seems to be true, it is yet noticeable 
that they are of less economic importance and of decreasing 
importance. Capital appears to be undermining one of the 
great obstacles to socialism. 



100 The Investment of Capital [Ch. vil. 

2. The greatly increased facilities for the practice of 
borrowing capital, and the favour which this practice finds 
both with wealthy borrowers and with lenders who like a 
regular income, raise very important questions as to the 
personal responsibilities of the rich. The lender lets the 
capital entirely out of his control, and feels no practical 
concern in the use that is made of it ; this in a lesser degree 
is true of those who have shares in the companies which are 
now so easily formed under the Limited Liabihty Companies 
Acts. And hence the moral question is coming more and 
more to the front. How far are capitalists really responsible 
for the manner in which borrowers use their capital, or for 
the manner in which the business is done by a company in 
which they have shares, while they exercise no appreciable 
influence on the management? To this subject we must 
return in a subsequent chapter. 



CHAPTER VIII. 

Capital in Action. 

I. The Services of Capital to the Public. 

m 

It needs no demonstration to show after what has been 
stated above that capital renders great services to the public. 
In so far as it is employed in enterprises it is used for facili- 
tating natural operations and saving time in the production 
of useful goods, i. e. of things people wish to use. It thus 
confers benefits on the public, for it supplies them with the 
goods they wish in greater quantities or with more rapidity 
than could otherwise be the case. Much of the capital that 
is lent is also used in this way so as to bring about public 
advantage ; the money that is lent to industrial or commer- 
cial companies, or used by Government for public works, is 
used for the general advantage. In some cases a borrower 
may obtain money which he merely squanders, and from 
which no public advantage accrues, but on the whole it may 
be said that the world or the nation or some smaller portion 
of the public is greatly the better in all sorts of material wel- 
fare because of the intervention of capital. 

1. This is the side of the matter that has been observed 
by economists of the Manchester School. Senior and others 
speak with the highest enthusiasm of the national and com- 
munal advantages which arise through the action of men 
who save and employ capital. They are apparently regarded 
as the greatest civic benefactors ; they seem to be possessed, 
as Cato said, with an almost divine virtue ; for it could hardly 
be doubted that men who conferred such benefits on society 



I02 Capital in Action [Ch. viil. 

were possessed of excellent qualities, and their thrift and 
abstinence were universally extolled. It cannot be denied 
that the ordinary millionaire modestly concealed these virtues 
under a sufficiently luxurious exterior, and did not appear 
unto men to fast. The absurdity of this laudation is suffi- 
ciently obvious in any case ; whether out of virtue or of self- 
interest, the great capitalists had their reward. But there is 
a danger lest the reaction against these absurd expressions 
should lead us into an opposite blunder and make us forget 
that, though the capitalist becomes rich, he does not become 
rich at the expense of the public, but only because his enter- 
prise and skill confer a real benefit on the public. If he 
makes a railway which no one wants and nobody uses, he 
does not become rich, but contrariwise loses his capital. His 
chance of becoming rich lies in successfully catering for the 
public, and it is just because the public are first served and 
well served that he gets an addition to his wealth. Some 
exceptions to this may occur in the case of monopolies, but 
it is true on the whole. Capital does render a great service 
to the public. 

2. But because capital affords an advantage to the public, 
in so far as it supplies consumers more easily, it does not 
follow, as more recent economists have assumed, that capital 
affords a great advantage to the labourer who produces. 
Whether it does or does not depends very much on his point 
of view. It may save his time, and it is then an advantage 
to the man who works by the piece ; but it is not so clearly 
a gain to the man who works by the hour and who does not 
find his time fully occupied. To talk of the labourer obtain- 
ing the use of capital on easy terms is to talk as if capital 
were the labourer's servant, whereas it is often his master. 
It is to assume a complete solidarity of interest between all 
those engaged in the process of production ; there may be 
this harmony over any period of years, but there is apparent 
divergence of interest from day to day and week to week. 
Conditions which favour the consumer need not necessarily 
favour the producer ; or how could there be an outcry for 
protective tariffs and fair trade and sugar bounties ? Because 



The Influence of Capital on the Labourer 103 

the introduction of machinery or the investment of capital 
renders a service to the public, it does not necessarily render 
a service to the labourer too. It may save him drudgery by 
enabling the work to be done more quickly and with less 
exertion ; indeed it may enable his employer to dispense with 
his services altogether. There is pure irony in saying of a 
man who has all his time on his hands and can earn nothing, 
that capital has rendered him the service of giving him a per- 
petual holiday. 

Hence it cannot be a matter of surprise that some social- 
ists have been inclined to seize on this side of the action of 
capital. They look at capital not primarily in its bearing on 
the public as consumers, or not at all in this aspect. They 
lay stress on the action of capital on the labourers as pro- 
ducers, and they think that there is a tendency on the part 
of capital to displace the labourer, to diminish his opportuni- 
ties of employment, and to lessen the returns he receives for 
his work. To such men the talk about the services rendered 
to the labourer by capital seems as absurd as the old pane- 
gyrics on the thrift and abstinence of the capitalist. They 
contend, on the contrary, that the growth of capital has 
coincided with the depression of the artisan, and that capital 
is not the servant but the enemy of the labourer. There is 
a sufficiently violent conflict of opinion here, and it will need 
some pains to enable us to discriminate how far the various 
antagonists are in the right. 

3. As to the general assertion that capital does render 
great services to the public — whether we mean the world, or 
the nation, or some smaller community, — there can be little 
doubt that capital enables us to have greater quantities of goods 
and to have goods from greater distances. If we may be 
sure that national welfare and progress is a good thing, then 
we may be also assured that what renders that progress more 
easy and rapid is also a good thing, {a) It is perfectly true 
that men lived and worked, and lived well and worked well, 
when little or no capital was employed in industry. Great 
works were undertaken slowly, and big buildings erected with 
the savings that could be afforded from each year's crops, 



I04 Capital in Action [Ch. Vlll. 

without the accumulation of any store; but this was not 
always the best way to do the work. In many cases there 
is a loss that can be definitely assessed in money when some 
work is allowed to drag on instead of being brought to a con- 
clusion as fast as may be ; but the disadvantage of slow and 
tedious work can be exhibited from another point of view. 
We are apt to cry out in the present day about the whirl and 
bustle of life, and to look back with regrets to times when 
there was less hurry and more calm; and for self-develop- 
ment in culture and the maintenance of high ideals some 
retreat from the bustle of life may serve as a necessary self- 
discipline which may ultimately react most favourably on 
society. But in so far as the enjoyment of material goods 
is to be regarded as an important element in human welfare 
the greater rapidity of life is a distinct gain. 

Because the world moves faster each man has during his 
life a greater number and variety of things at his command. 
He can command and use the products of distant lands, 
because they are brought so fast and so easily ; he can spend 
a holiday in another county, or even in another country, 
because of the rapidity of travelling. To have work done 
quickly is a good thing, because we are able to enjoy the 
results of it sooner. There is a royal satisfaction in founding 
a palace to perpetuate the name of a conqueror, but there is 
also a satisfaction in finishing the palace before you die, so 
as to be able to hve in it. Akbar and others built palaces 
which they never lived to complete, and as their successors 
did not care to occupy another man's foundation, they have 
even failed to obtain the posthumous fame they hoped for. 
Many Benedictine Abbeys took generations to complete, but 
the Cistercians worked more rapidly because they procured 
capital from the Jews in order to build their great churches ; 
they wished to complete them in less time than was other- 
wise required. It is perfectly true that all sorts of magnifi- 
cent things can be accomplished without capital, and there 
are some things, like the growth of a forest of oaks, which 
capital can do very little to hasten ; but those who build 
a big church may like to have it to use before they die, and 



Co7nmand of the Co ?n forts of Life 105 

the benefit which capital confers is shown in their being able 
to use it sooner. 

b. The contrast betwixt England in the past and the present 
brings out three great differences as regards the ordinary 
comfort of life, — the vast expansion of foreign commerce and 
the opportunity for enjoying foreign products, including corn ; 
the greater rapidity with which work can be done, and the 
diminution of risks of utter disaster and impoverishment. 
Two of these are obviously connected with the use of capital 
and the services it renders ; the third is largely due to the 
fact that capital has been formed so largely, and that there 
is an immense reserve of wealth to fall back upon. The 
mediaeval burgess had to be content with a wooden house ; 
he was constantly exposed to risk of fire. Capital enables 
him to have a better house of less inflammable materials, 
and some association of capitalists called an Insurance Com- 
pany relieve him of the risks of being burnt out of all his 
property. It has needed great capitals and large expenditure 
to diminish the risks of flood in the midlands and the fens, 
and life goes more smoothly as well as more swiftly because 
capital has been formed and applied in these ways. The 
greatness of the power of capital has been already illustrated 
from the growth of the Roman Republic and of the English 
Empire ; it would be also striking if we could really draw the 
contrast between the daily life of men in our land in pre- 
capitalist and in capitalist times. 

If we were to compare the past and the present we should 
find that there were such differences of taste in different 
ages that no standard is available for us unless we are con- 
tent with a purely sanatory one, and consider the extent to 
which anyone could command the things that are requisite 
for maintaining and prolonging human life. It is pretty 
clear that a Norman baron, who had no floor to the hall of 
his castle, no bed to lie on, no plates to eat off, and no glass 
to drink out of, whose food was sometimes tainted and un- 
wholesome, enjoyed a worse life, from the insurance company 
point of view, than the modern pauper in a workhouse. Even 
if we leave out all the risks and uncertainties which come 



io6 Capital in Action [Ch. vill, 

from frequent fighting and occasional famines, we may see 
that the rich noble fared but badly in old days, and could 
not count upon the simple comforts which are now found in the 
poorest houses. It may be that the twelfth century villan 
was but little worse off in these matters than the twelfth 
century baron; but in any case we may assume that the 
poor man was not better provided with material comforts 
than the rich one. The lot of the labourer to-day is bad 
enough, but it will still compare most favourably with the 
condition of those who drudged and totted as serfs before 
capital had been formed and came into operation in con- 
nexion with English industry. There is much reason to 
believe that the formation and employment of capital has 
been the means of conferring benefits on all classes of the 
community, even when the fullest allowance is made for the 
mischiefs which have accompanied it. 

It is unnecessary to insist on this at greater length, 
especially as we shall return to it later. We may now turn 
to consider the nature of the evils which have attended the 
growth of capital, and which may be seen, partly in con- 
nexion with social organisations, and partly in their bearing 
on individuals. 

II. The Destruction of simpler Social Organisations. 

1. The growth of capital has resulted in breaking down 
social and economic organisation. There have been and 
are various types of economic organisation. The simplest 
is the village, or family group, which is practically self- 
sufficing, and where the whole industry of each of the in- 
habitants can be fitted in so as to subserve the general 
requirements. There is a village weaver who exercises a 
traditional art and weaves the necessary clothes for all the 
inhabitants. But a time is sure to come when the isolated, 
self-sufficing village is drawn into the circle of trade. The 
villagers have the opportunity of buying cloth, made with 
the help of capital, and brought to their doors by the help of 
capital, and they find that it suits them better than the cloth 



Destruction of Village and Municipal Economy 107 

supplied by the village weaver. His trade is ruined, his 
loom is left idle, and the village has ceased to be a self- 
sufficing economic organisation ; it is dependent on trade, 
perhaps on trade with a distant country, for its supply of 
cloths. The old village life, with its simplicity and its self- 
centred neighbourhness, has suffered a serious inroad ; it no 
longer forms a little world of its own, well-ordered and con- 
tent ; it becomes a fragment of a great, struggling, and 
competing world. 

2. Or again, to take another type of economic organism, 
we may have a city, in which the whole of the trade and 
industry was regulated for the good of the town and by 
means of an elaborate system of gilds. There is, we may 
suppose, a tanning gild who make leather ; but when 
capitalists who manufacture leather in places that are 
specially fitted for the trade bring leather from a distance, 
it may easily be that they will undersell the local tanners 
and destroy their organisation. And in this there is serious 
loss. It was much easier to supervise the quality of goods 
when the producer and consumer lived in close connexion, 
and any well-founded complaint could be the subject of 
immediate investigation. The mere fact that the supply 
comes from a distance renders it very much harder for the 
consumer to get a sufficient guarantee of the quality of the 
wares, while it also makes it harder for the producer to adapt 
his output to the requirements of the case. The intervention 
of capitalist traders and capitalist producers seems to have 
done much to break down the old municipal regulation of 
trade and municipal esprit de corps. Several of the flourish- 
ing towns of the fourteenth century, in each of which a large 
variety of crafts had been represented, only managed to sur- 
vive in the seventeenth century because they had succeeded 
in becoming the centre of a special branch of industry which 
was organised by capitalists for the supply of a large area, 

3. It is thus that the power of capital has broken down the 
simpler types of economic organism, and, as has been stated 
above, there is some reason to believe that the power of 
capital is breaking down the national organisation of industry 



loS Capital in AcHon [Ch. VIII. 

and commerce. Nor when we fix our attention on the better 
sides of the institutions that have gone is it altogether easy 
to reconcile ourselves to the loss of the simple village life, or 
the strong esprit de corps that created the civic glories of 
which such meagre vestiges survive. We may look back on 
them and admire ; but we would also do well to consider the 
cost which would have been involved in order that these 
institutions, which at any rate look so well from a distance, 
might be retained. Industrial organisation requires con- 
ditions that are practically fixed, for changes may put the 
machinery out of gearing; any little variation will set the 
industrial organism wrong, however beneficial the ultimate 
results of the change may be. Village life could only have been 
preserved by forbidding all opportunities for intercourse with 
other peoples, as so many of these villages have done and do. 
The maintenance of the old town life could only have been 
secured by checking the new development of industry and 
commerce, as so many towns tried to do. These early forms 
could only have been retained at the cost of sacrificing all 
further progress. We cannot wish that the world were all 
made up of village communities, with no greater possibilities 
of cultivation than they possess ; or that it should have 
stayed on the level of the life in mediaeval towns with their 
narrow jealousies and bitter disputes. Human progress 
has been a good to mankind, though at each stage there has 
been a real sacrifice. Each period of transition has involved 
some elements of loss, but the gain of greater command over 
the means of life could not be secured without some measure 
of loss. We cannot make sure of retaining the good in the 
institutions of any period, unless we can so exclude change 
as to interfere most seriously with the possibility of any 
farther progress. 

Objection has already been taken to the schemes of those 
who desire more complete organisation of industry, from the 
difiEiculty of selecting the best type of organisation to adopt 
(p. 64). But the facts which have just been noted indicate 
another difficulty, for we cannot hope under any circum- 
stances for a completely self-adjusting organisation. Might 



Introduction of Machinery 109 

we not have reason to dread that a nationahsed industry- 
could only be maintained in working order if the elements 
of change, and therefore of progress, were excluded? It is at 
least important that any one who proposes the thorough- 
going national organisation of industry and commerce 
should be clear that his scheme not merely allows for 
organising things as they are, or for organising things as 
they may be when human powers are greater than they are 
now, but that it is one which is so devised that it will 
neither offer serious obstacle to future progress nor be itself 
unable to stand the strain of the transition. 



III. The Decreased Importance of the Labourer. 

1. The action of capital has now to be considered as it 
affects the individual prejudicially. The most obvious illus- 
tration of this occurs in the introduction of machinery; 
it is generally recognised that the rapid substitution of 
machine production for production by hand is likely to 
diminish the labourer's opportunities of employment, for 
a time at any rate, and thus to injure him in his capacity 
as a producer. Stated in general terms, it may be said that 
machinery renders the labourer a less important factor in 
production. If machines are introduced into a department 
of industry which has been previously carried on by hand, 
and by hand alone, then the man is no longer the only active 
force in production. By means of machinery other natural 
forces are introduced to do part of the work which has 
hitherto been done by human muscles alone, and labour is 
no longer the sole or even the principal agent employed. 
More work is done, and probably more gain accrues by the 
change, but the labourer who formerly did all the work, and 
therefore got the full reward, now only does a part of the 
work and therefore only gets a part of the reward. He may 
in time find that the pay he gets for doing a part in a great 
deal of work is as large as the pay he formerly got for doing 
the whole in a smaller amount of production, or he may not. 
But in any case there is a relative depression in his position 



no Capital in Action [Ch. VIIL 

as a producer because he is a less important factor in the 
process of production. 

2. The half century which saw the great introduction of 
machinery into the textile trades furnished numberless 
illustrations of the injurious effects which may follow from 
such a change. In the days before machine industry was 
introduced, the skilled labourer was sought after as the one 
means of introducing or perpetuating a trade. Parliament 
would not allow English woollen weavers to migrate to 
Ireland, and sought to prevent English citizens from seeking 
employment abroad ; and if skilled workmen, the men who 
practised the art and understood the secrets of the trade, 
abounded here, the trade could hardly be transplanted else- 
where. But with the introduction of machinery the skill of 
the workman came to be of less account; children could 
be employed to mind machines, and the deftness of the 
'manufacturer' ceased to be of primary importance in the 
trade. He might emigrate or not as he chose, and nobody 
cared. 

{a) In the middle of last century it was possible for the 
weaver to plan his work as he liked ; the families engaged in 
spinning and weaving had often some interest in agriculture, 
and the two kinds of occupation could be carried on together. 
But even when the weaver did not get the gain which a bye 
employment gives he was less pressed ; he might have a short 
day when he saw a chance of a little poaching, and make up 
for it by a long bout at another time ; he was his own master. 
But with factory industry all this is changed ; the machines 
go on with relentless vigour, doing the regular day's work, 
beginning at the regular time, and running till the mill 
closes ; each hand must be there and put in full time. 
There is a remorseless undeviating demand upon the energies 
of the hands who attend upon machines. Besides this, there 
has been a tendency to increase the hours of labour; the 
machine does not need to rest, or, at any rate, needs very 
brief rests ; every idle hour is a loss to the owner of the 
mill, inasmuch as his machinery is not turning out the work 
it; might do ; the more hours he can make it run the more- 



Tntejisity of Labour Hi 

easily does he recoup himself for the outlay expended on the 
machinery. Human beings, however, need to go from labour 
to refreshment; but it is quite probable that the owner of 
the machine will put pressure on the hands who tend it and 
make them work, not merely the hours they can work and 
get the needed rest, but hours that leave them no proper 
intervals for food and sleep, in the hope of reducing the 
time when the machinery is standing idle. There was a 
great tendency to lengthen hours unduly, and no means 
short of the intervention of Parhament in the Factory Acts 
sufficed to check it. 

{b) Another very important matter has come to the front 
since a maximum has been fixed for the hours of labour in 
factories. There is a desire to make the most of these hours, 
and therefore to increase the pace at which the machine 
works, or the demands upon the quickness of the hands. 
The strain of work may be very greatly increased while the 
hours of work remain the same ; this strain of work cannot 
be easily measured, or the wear and tear of nervous energy 
which it involves readily estimated. But it is obvious that 
in all these ways there is a temptation to treat the machine 
as the main element in production, and to make it the 
measure of what the man ought to do, instead of regarding 
the man as the first consideration and the machine as the 
instrument which helps him ; the machine may be made the 
primary consideration, and the man may be treated as a 
mere slave who tends it. 

{c) The question as to the change in the position of the 
artisan is often regarded as a matter of wages. To the 
reward of labour we shall have occasion to return when we 
come to discuss the remuneration of capital. In the mean- 
time it may be enough to point out that all these tendencies 
indicate that there is a real depression in the position of the 
labourer relatively to other factors in production, and that 
the primary question is not as to changes in the reward of 
labour, but as to the change in its importance. The artisan's 
work does not count for so much as it formerly did, and on 
the face of it one would expect that it would not be paid so 



112 Capital ill Action [Ch. VIII. 

well ; not because capitalists are greedy and grind the men 
down, for the force that displaces them is not the selfishness 
of any master, but the skill which applies a new force to 
procure the old results more quickly and more cheaply. It 
is human inventiveness, not in the first instance human 
greed, that has displaced the labourer. The employer cannot 
force back the tide which is running ; in old days gilds tried 
to check it and failed ; in later times Parliament shrank from 
attempting the task, and now men see that it is hopeless to 
keep the trade in its old groove by breaking machines or by 
violence. The labourer suffers, not because anyone deliber- 
ately seeks to grind him down, but because the world has 
learned to dispense with the services he has been used to 
render. Blame may attach to those who do not do their 
best to habituate the labourer to the change, and to make 
the transition as easy as may be ; but even if they are care- 
less about this duty, the change has not been caused by 
human selfishness, but by the skill that has so adapted 
physical forces that machine labour has superseded the 
necessity for so much human labour or such highly skilled 
human labour. The man who can supply labour is not so 
much sought after as he was, and can hardly be expected to 
make such good terms. 

There can, I think, be little doubt however that at the 
time of the industrial revolution not only was there a diminu- 
tion of the relative importance of labour as a factor in pro- 
duction, but that the labourer began to* suffer greatly as to 
the length of his hours and the intensity of work, not to 
speak of the rate at which it was rewarded. Granting then 
that he became of less importance tlian formerly, and that 
his welfare was seriously injured by the changed condition 
of his work, was this in any sense a necessary result, and 
one that always attends the operation of capital? Is there 
an iron law according to which capital, while introducing 
improvement in production, necessarily grinds down labour 
not merely to a less important position as an economic factor, 
but to a lower level of material welfare ? 

It appears to me that there have sometimes been social 



Roman Slaves 113 

conditions in which increasing power of capital was neces- 
sarily prejudicial to the labourer, but that there are other 
social conditions in which no such injurious results occur. 
The law may have hypothetical validity under certain 
assumed conditions, but it is a law which only describes the 
action of capital in so far as these conditions hold good. 



IV. Slave Labour in Rome and English Labour. 

1. Allusion has already been made to the condition of the 
Roman Republic at the time when capital was the supreme 
power, and we have ample evidence as to the view which 
was commonly taken of labour in those days. Labour was 
performed by slaves, who were viewed simply and solely as 
labouring machines. Their lot was degraded, and they were 
deliberatelv kept in a state of degradation so that they should 
be less likely to join in revolt. The servile wars had given 
the Romans a terrible warning, and they acted on it by 
drawing the bands most closely on the thralls. The slave 
was simply a human possession, to be used in such fashion 
that the greatest possible amount of work should be got out 
of him in a given time. There was no pretence of recognis- 
ing any human ties, or any obligation to the slave ; he was 
regarded not so much even as a domesticated animal, but 
rather as an imperfectly tamed and savage beast that could 
only be controlled by being kept under. The virtuous Cato, 
as Plutarch describes him, in his later years ' never failed, as 
soon as dinner was over, to correct with leathern thongs such 
of his slaves as had not given due attendance, or had suffered 
anything to be spoiled. He contrived means to raise quarrels 
among his servants, and to keep them ever at variance, ever 
suspecting and fearing some bad consequences from their 
unanimity.' This period of frugal citizen life was afterwards 
thought of as a time when the slaves were comparatively 
well off, and enjoyed an amount of consideration which was 
never shown them on the large estates of the great land- 
owners of later times. ' In these times they treated their 
slaves with great moderation, and this was natural, because 



1 14 Capital in Action [Ch. VIII. 

they worked and even ate with them.' But the fact that he 
shared their labours and their food did not kindle any 
sympathy in the mind of the frugal citizen. As he weeded 
his stock of cattle from time to time, so Cato recommended 
the householder ' to sell such of his slaves as are old and 
infirm, and everything else that is old and useless,' an 
observation which moved the indignation of Plutarch, who 
thought it indicated a mean and ungenerous spirit. Un- 
fortunately it seems to be fairly representative of the ordinary 
habit ; and despite the kindness which was lavished on 
favourite slaves, or the responsible position which diligent 
and faithful slaves might enjoy, there can be little doubt that 
the mere labourer was simply treated as an absolute chattel. 
The man who sent a valuable slave into a fever-smitten 
region was held to be foolish in risking his own property 
when he might have hired a labourer for the purpose; but 
the old and worn-out slave was a useless property for whom 
no regard could be shown. The writings of Cato and Varro 
give us the impression that it was the recognised system of 
good estate management to get all possible work out of the 
slaves, and to keep them completely cowed and broken in 
spirit. We cannot doubt that in such a state of society the 
iron law would have had free play. Any invention which 
rendered labour less important would have resulted in a 
greater carelessness of slave life, and a more reckless asser- 
tion of the powers of the master. 

But even with all the evils of the present day, the misery 
caused by the sweating system and all else, there is at least 
an important difference. The unhappy condition of the 
labourer to-day is regarded as an evil ; it is not maintained 
as the necessary means of carrying on the work that has to 
be done. There may be some hypocrisy in the commisera- 
tion that is expressed ; but it is at least a tribute which 
hypocrisy pays, and there is a public feeling which demands 
the tribute. In Rome there was none. 

2. {a) In England in the present day labourers are free, 
and many of them have the rights of a citizen ; none are the 
absolute chattels of a master. And hence the worst features 



Freedom of Labour e)- and Fluidity of Labour 1 1 5 

of Roman slavery are not known ; there is no deliberate 
eifort to keep the labourer in a state of mental and moral 
degradation. On the other hand, both Church and State 
devote much effort to educate and improve him. The whole 
of the Home Mission work, which takes so many forms, and 
which is largely maintained by the charity of the rich ; the 
whole of the efforts to diffuse and improve primary education, 
which have placed such a burden on the taxpayers and the 
ratepayers — a burden that is for the most part willingly 
borne, and is voluntarily increased by large donations, — marks 
the difference between the English and the Roman era of 
capital. 

(J?) Again, this personal freedom introduces another safe- 
guard in the fluidity of labour. The man can seek a new 
master. He may find it hard to get employment, he may have 
to tramp the country or to emigrate, and in thousands of 
cases it may be practically impossible for him to have re- 
course to either expedient. Still the fact that it is an 
expedient of which many can and do avail themselves rather 
than be put upon is not to be forgotten ; it marks an entirely 
different condition of society from that which existed in the 
time of Cato at Rome. The tone of public opinion is in 
favour of encouraging a man to better himself when he can, 
and there are numerous philanthropic and Government 
agencies which are intended to assist him in seeking better 
employment. 

There are many cases too where the master is to some 
extent in the power of his men. A great business would suffer 
if the staff were broken up and a new set of hands who did 
not know the ways of the place were at once introduced. If 
his shops are at all busy the master dare not face the 
difficulty of reorganising the whole concern. The very scale 
on which business is now done gives the workers an extra- 
ordinary pull if they use the opportunities they have of acting 
together. 

if) The freedom of the labourer and the fluidity of labour 
render it difficult to treat the labourer as a mere producing 
machine and entirely to ignore his character as a human 



ii6 Capital in Action [Ch. VIII. 

being. And even if there were the will to do so, public 
opinion is sufificiently awake and sufficiently disinterested to 
be able to exercise a very real influence. The commercial 
interest was, as has been noted above, absolutely supreme in 
republican Rome ; and there was no philanthropic side from 
which a practical protest was likely to be raised against the 
maltreatment of the slave. In England at the present time 
the power of public opinion is constantly felt as protesting 
against gross and marked evils that attract attention. It is a 
somewhat spasmodic and fitful mfluence, easily roused and 
easily appeased ; it is not very discriminating, perhaps, but 
it certainly is a very considerable power when it is brought 
to bear, as the story of the Dockers' Strike shows clearly. 

So far public opinion has made itself felt as a negative 
influence. It is roused by this or that wrong, the popular 
imagination is affected by great suffering and responds to 
such appeals ; but it has never been able to devise an 
effective scheme of what ought to be. The nearest approach 
has been in the successive Factory Acts which have limited 
the hours of labour ; they have laid down the limits of the 
working day in a great number of industries, and the principle 
is being applied more and more widely, so that the agitation 
for a uniform eight hours day makes itself distinctly heard 
and felt as a political power. How far a limit of this kind is 
desirable, and how far the proposed limit is the right one, it 
is unnecessary to consider here. The point to be noticed is 
that we have a very distinct effort to assert the supremacy of 
men as men over the mere mechanism of production, and to 
insist that work shall be done on the conditions that suit the 
man, not on the conditions that suit the machine. It is in 
the assertion of the absolute value of human life that the 
safeguard lies against the miserable results of the great era 
of industrial advance. The world is infinitely richer, but it is 
very little happier ; the strain and drudgery of the lives of 
millions seem to be as great or greater than before, as Mill 
sadly complained. It is by asserting the worth of individual 
human life as such, by insisting that the man's hours shall be 
such that he may do the best work he can and not be worn 



Christian and Pagan Ideals 117 

out before his time, that a remedy may be found. In this 
way he will perhaps have more leisure than he is likely to 
spend in an ideal fashion at first, but at least he will have the 
opportunity of learning to spend his leisure better. The 
important thing is to secure that the conditions of labour 
shall be such as are satisfactory for the life of man, and not 
such as degrade him in mind or body ; and when Jhese are 
secured the reward of labour is not likely to be the subject of 
much complaint. For, after all, the conditions of work are 
the main thing ; the advocates of shortened hours too often 
speak as if the main thing were to give a man leisure ; but 
idleness is a miserable ideal for an individual man, and it is a 
hopeless one for the race. It is good for a man to have 
work to do and to be able to do it ; to have his faculties of 
mind and body exerted. They have the happiest lot in life 
who are able to choose the work that interests them, and to 
do it with hearty enthusiasm for its own sake. 

There are many influences at work which tend to confuse 
public opinion on these matters, to set a low value on human 
life, and to idealise idleness rather than work ; to popularise, 
in fact, a Pagan rather than a Christian view of life. And 
whatever may be the other moralising influences at work 
which shall serve to keep up the tone of public opinion on 
this matter, there can be no doubt that Christian teaching 
is a most important factor. There is no other creed which 
attaches such high importance to the individual life as im- 
mortal and undying, and also to the human body as the 
instrument of redemption. There is no other religious system 
where the duty of work has occupied a foremost place as a 
personal discipline, as it did in the monastic rule, or as 
affording the means of exercising charity. Paganism in all 
its forms attaches so httle value to human life that it is ready 
to sacrifice it, and to justify the degradation of some as 
expedient for the comfort and culture of others. Paganism 
has always contemned work as degrading, and idealised a 
selfish idleness which shut its eyes to the needs and sorrows 
of others. The more these Pagan conceptions affect our 
ideal for society and for ourselves now, the less hope is there 



Ii8 Capital in Action [Ch. VIll. 

of making the most of the great opportunities we possess for 
the permanent welfare of society. 

d. The influence of public opinion must not be overlooked, 
but it is doubtful whether it can exercise an effective control 
over all the work that is done throughout the country, and 
see that the conditions under which it is carried on are as 
satisfactory as may be. The little mediaeval towns found it 
impossible for one body to supervise all trades ; it would be 
still more difficult for a national parliament to understand 
or give effect to the best possible regulations for each 
trade in every part of the country. This point has been 
already mentioned in connexion with the administration of 
capital; there is at least equal difflculty in connexion with 
providing improved conditions for labour, and it is at present 
unnecessary for the State to attempt it for all trades in all 
places. Organisations of labourers, to regulate the conditions 
under which work is done, have accomplished much. Trades 
Unions are not merely concerned with struggling for higher 
wages ; they endeavour to control all the conditions of labour, 
to see to the risks to life and limb, the irregularity of em- 
ployment and so forth, as well as to the rate of reward. Just 
as there seems to be need for the individual and associated 
administration of capital in some departments, so it appears 
probable that the conditions of labour are better seen to by 
special associations like Trades Unions than they could be 
by any general body. It may be doubted if the Social 
Democracy could ever be organised so as to give such 
effective control of each trade as the Unions now exercise, 
or to offer such occasional interference and constant criti- 
cism as is supplied by the organs of public opinion. 

When we fix our attention, not on the miseries of the 
present day — miseries which are due to many and compli- 
cated causes — but on the facts with regard to labour which 
distinguish English from Roman society, we may see that 
the political freedom of the labourer, the fluidity of labour, 
and the force of public opinion and of trade organisations, 
place the modern artisan in an entirely different position 
from the Roman slave. He may be badly treated, but he is 



TJie Iiidustrial Revolution 119 

regarded as a man. How fast or how slowly the same or 
similar influences may be brought to bear on the unskilled 
labourer, and on woman's work, we need not pause to specu- 
late. There is all the more reason for hope when we 
remember how rapidly and effectively these forces have 
come into play in improving the conditions for the work of 
the skilled artisan. 

3. {a) The time of the industrial revolution in England 
approximated much more closely than might at first sight 
appear to the conditions of society in republican Rome. 
Not that there was the same recklessness in regard to the 
life of the artisans, but chiefly because the institutions which 
had been intended to protect him and to secure him favour- 
able conditions had ceased to serve any useful purposes and 
only hampered him instead. At any rate, while there is a 
contrast between Rome and England in the present day, 
there is a similar contrast between England a century ago 
and the England of to-day. The artisan, generally speaking, 
had no voice in the government of the country, and had not 
the full powers of a free citizen. Fluidity of labour was very 
seriously hampered by the law of settlement, and, as Adam 
Smith has pointed out, the Englishman was put at a distinct 
disadvantage by the obstacles which conspired to prevent 
his going to seek employment in districts where it might 
be obtained on more favourable terms. He had none of the 
security which is given by political freedom and by the 
fluidity of labour. 

{b) Besides this it was almost impossible to arouse public 
opinion on his behalf, for the public were inclined either to 
trust to the efficacy of the old institutions, or to believe that 
things would right themselves if the old institutions were 
swept away. The artisans themselves appear to have been 
satisfied with the protection the Elizabethan statutes gave 
them, and only asked to have these statutes carried out, and 
the Berkshire justices patched up the whole scheme of regu- 
lation by using the poor rates to supplement starvation wages 
by allowances. But the Elizabethan scheme had been 
devised for a state of technical knowledg^e, when human 



I20 Capital in Action [Ch. VIII. 

strength and skill were the chief elements in production ; 
the old rules for apprentices and journeymen had no appli- 
cation to the great factories and the running of machines. 
To maintain the old system in its entirety would have been 
to check the introduction of machinery and to condemn 
English industry to the use of cumbrous and old-fashioned 
methods. Thus, when the position of the hand-combers in 
the worsted trade was first threatened by Cartwright's in- 
vention, petitions were organised and a bill was introduced 
into the House of Commons for the purpose of protecting 
wool-combers from being injured in their manufacture by 
the use of certain machines lately introduced for the combing 
of wool. This failed to pass and measures were taken instead 
to facilitate the introduction of machinery ; the annual saving 
it caused was estimated at ^40,000 a year in 1798, and English 
public opinion would not sanction the prohibition. Neither 
those who desired to maintain the old safeguards nor those 
who had hopes that the system of natural liberty would ex- 
tinguish all wrongs were inclined to listen to the proposals 
of Mr. Whitbread, who endeavoured to amend the old system 
of regulating wages so as to make it effective for good in 
the new circumstances, and to prevent them from falling 
below a reasonable minimum. 

Further, public opinion was deadened by the fact that there 
had been a long period of unusually bad seasons, and then 
a period of pressure caused by the exhaustion due to the 
long wars. There was general misery both in town and 
country ; if the artisan suffered greatly, he only seemed to 
be bearing his share of the common lot, and public opinion 
did not recognise anything distinctive or any special call for 
interference in regard to his condition. 

{c) While public opinion was thus callous, the sufferers 
were themselves unable to give effective expression to the 
misfortunes of their condition. Under the Elizabethan 
system there had been a great code for the regulation of the 
conditions of labour and the reward of labour. Those who 
combined to upset the provisions laid down by public 
authority were promoting disorde-r and attacking the whole 



Co7nbination Laws 121 

social system, and thus conspiracy and combination in regard 
to the terms on which labour should be done had been 
stringently prohibited. Such compulsion is of course neces- 
sary under some form or other wherever there is a complete 
system of organisation. If public authority undertakes to 
make arrangements it cannot allow the grievances of private 
individuals to be an excuse for actively defying it. But the 
peculiar evil of the period of industrial revolution was this, 
that while the public authority no longer fulfilled its economic 
functions and decided the conditions and terms of labour, 
the laws which prevented the labourers from combining to 
attain satisfactory terms for themselves were not repealed. 
The current political philosophy saw no grievance in this ; it 
was entirely concerned with securing free play for the indi- 
vidual, and the political economy of the day was chiefly 
occupied in struggling against the restrictions which ham- 
pered individual action. It was only by degrees that the 
world saw that individual action was hampered when the 
labourer was forbidden to combine with other men to secure 
his own interests ; but during a long period the artisan 
received no assistance from the law, while it was constantly 
invoked to prevent him from attempting to protect himself. 
It thus came about that during this period of transition from 
the Elizabethan to the philanthropic legislation, the English 
labourer was temporarily placed in circumstances as regards 
capital which corresponded more closely with those of the 
Roman slave than with those of the modern artisan. 

{^d) Bitter as the struggle was then, there is ample evidence 
that the English labourer was never regarded merely as an 
untamed beast, to be used as much as might be, and to be 
rigorously restrained ; the English poor law, especially in re- 
gard to settlements, added to the evil, but its existence marks 
a difference between England and Rome at the time when 
things here were worst. Still, it came about that for practical 
purposes, so far as his work was concerned, the labourer was 
treated as a mere instrument of production ; neither public 
opinion nor labour combinations did anything to prevent it, 
or to assert, the importance of conducting industry in such a 



122 Capital in Action [Ch. VIII. 

fashion that the labourer should at least enjoy the old stan- 
dard of comfort, and also have opportunities of attaining 
something better. 

4. There is however considerable room for difference of 
opinion in the vi^ay the facts of the miserable story of the 
English operative in the early period of the factory system 
are interpreted. What is their bearing on the more general 
questions of the relation of capital and labour? On the one 
hand it is said that they demonstrate the evil of allowing 
capital to be owned by private individuals ; that private 
capital oppresses labour whenever it gets the chance, and 
that there can be no security against the repetition of such 
evils unless capital is removed from the hands of those who 
deliberately grind down the labourer for their own advantage. 
The suggested remedy would therefore lie in handing over 
the control of capital to public bodies. 

On the other hand, it may be urged that the degradation 
of the labourer was due to causes which lay far deeper than 
any special method of administering capital. The new appli- 
cation of physical forces to the textile industries made him 
a less important factor in production, and in whatever way 
capital had been administered, he could not but be a less 
important factor than he had been before. In the face of 
this great change in the economic importance of the labourer 
public authority was paralysed ; it could not enforce the old 
system, and it could not see how to construct a new one. 
Even in looking back it is difficult to suggest what could 
have been done by the most enlightened and public-spirited 
legislature in order to diminish the evils that were then dimly 
understood. This at least may be said, — that the existence 
of public regulation and authoritative arrangements for in- 
dustry which could not be enforced, was one very obvious 
reason for the misery. It shows that if a national system of 
industrial organisation breaks down, the very existence of the 
debris of that system delays the application of a remedy. The 
misery which accompanied the breakdown of the old industrial 
system is not more conclusive of the mischief wrought by 
capital in private hands, than it is of the inability of public 



Reinedial Influences 123 

authorities to adapt their arrangements to new economic con- 
ditions. It gives us no reason to hope for immunity from 
such disaster by substituting one method of administration 
for the other. 

5. There would be more interest in looking, not at the 
suggested safeguards against a recurrence of the evil, but at 
the forces which have come into play to remedy it; they 
have improved the status of the artisan so remarkably, by 
giving full political freedom, greater fluidity of labour, and 
more opportunity of supporting his claims by means of public 
opinion and by his own associations. These remedies must 
be sought, not in any external conditions, but in the personal 
convictions and aspirations which supply the springs of hu- 
man action. It may surely be hoped that powers which 
have effected so great a change within our own time will be 
able to accomplish much in the future, unless their force is 
exhausted. There are two influences which may be noticed. 

{a) On the one hand there are the political doctrines which 
had been formulated in England by Milton, Locke, and God- 
win, and which acquired a new force from the triumph which 
similar opinions obtained in the French Revolution. The 
Reform Bill, the Chartist agitation, and much else may be 
regarded as the practical expression of this long literary 
tradition of political doctrine. 

(J?) There was, however, another movement which affected 
the upper and middle classes, and which must not be ignored. 
The evangelical revival had given a considerable impulse to 
philanthropy ; it had called forth action on behalf of African 
slaves, and it had devoted itself to missions in heathen lands ; 
it did not long continue to ignore the crying needs of sufferers 
at home. Attempts to diffuse education emanated very 
largely from men of this type, and the agitation in regard 
to the Factory Acts was greatly strengthened by the energy 
of Lord Shaftesbury. These two distinct influences, literary 
and religious, have sometimes been ranged in opposition to 
one another, but they have on the whole co-operated to work 
an extraordinary change. Nor can it be said that either is 
completely exhausted as practical forces in the present. So 



124 Capital in Action [Ch. Vlll. 

long as Woman's Suffrage is a subject of contention the com- 
monplaces of Locke's political theory are not likely to be left 
to rest in silence ; and if philanthropy is not always wise it 
certainly is not extinct. 

The fact that there has been such a remarkable recovery 
on the part of the artisan population of status and importance 
is one that goes far to justify the wisdom of Parliament in 
refusing to stop the introduction of machinery and the or- 
ganisation of industry on wholly new lines. Material progress 
gives the opportunity of gain of every kind, material and 
moral and intellectual. It is a false policy to check a step 
in advance, even though that step leads into dark places and 
troublous times. Just as the maintenance of old organisations 
was incompatible with progress, so too was the maintenance 
of the old status of the labourer incompatible with progress. 
But after all the progress was real, and the proof of it lies in 
the fashion in which the artisan has recovered, not indeed 
the precise economic importance that he had in the Eliza- 
bethan regime, but a better status as a citizen and greater 
opportunities as a man than he has ever enjoyed before. 



CHAPTER IX. 

The Replacement of Capital. 

I. The Manner of Replacement. 

There are considerable differences in regard to the re- 
placement of capital according to the different ways in which 
it is employed. 

1. So far as capital which is lent is concerned the 
replacement of capital takes place when the loan is repaid. 
The lender gets his capital back into his own hands, and the 
transaction is completed. In other cases, as in money lent 
to the Government, and included in the consolidated debt, 
there is very little likelihood that the lender will survive to 
be repaid by the borrower. But he may find some other 
person who is willing to buy him out and to take his place 
as a national creditor. He then sells his right to draw 
2| per cent, on a certain sum, and by this means has his 
capital replaced. The replacement of capital is a very 
simple matter when it has been lent; for it is supplied as 
money, and is repaid as money, and the lender has never to 
consider it in any other form. 

2. The replacement of capital engaged in a commercial 
speculation is also comparatively simple. The picture-dealer 
buys a certain number of pictures and keeps them ; his 
business connexion enables him to sell them again, and the 
growing reputation of some artists or the vagaries of public 
taste may enable him to sell them for much more than he 
gains. He makes a venture, and his capital is replaced when 
he sells the wares which he purchased with it, and which he 



126 The Replacement of Capital [Ch. IX. 

made up his mind to hold till he saw a chance of getting rid 
of them advantageously. Here his capital is invested in one 
particular kind of wares, and it is replaced, after a longer or 
shorter number of years, and replaced with more or less gain, 
according as the dealer is successful or not. And capital 
engaged in trade is all replaced in some such fashion ; it is 
laid out in the purchase of wares, tea or tobacco, or cotton, 
or cloth, or anything else, and it is replaced when the wares 
are sold. 

{a) Whereas in the case of lent capital the replacement 
takes place when the borrower pays, and the lender has 
a definite claim upon some one individual, the position of the 
trading capitahst is quite different. He expects that his 
capital will be replaced by some individual or individuals 
from among the public, but he does not know by whom ; he 
may have a pretty shrewd suspicion as to which of various 
clients is most likely to purchase the goods, but unless he has 
a contract he has no claim upon any one of them to do so, 
and he certainly would not refuse a good offer from a new 
customer. It is thus true to say that the dealer caters for the 
public, and that his capital is replaced by the public Inas- 
much then as he cannot claim the replacement of his capital 
by any individual in particular, his trade is due to enterprise ; 
it is a speculation, for he carries it on in the expectation that 
it will turn out all right. He caters for the wants of the 
public as he understands them or can forecast them, and he 
expects that somebody will purchase his goods, and that by 
thus purchasing the public will replace his capital. 

(b) When his capital is replaced he can start on another 
transaction ; he can buy a new lot of goods and sell them again 
so that his capital is again replaced, and every time he com- 
pletes the process of buying and selling again he turns over 
his capital. He invests money in goods, and sells the goods 
for money, and thus turns the whole over. Now it is obvious 
that he would not undertake the risk of catering for the 
public unless he expected to be able to sell for a larger sum 
than that at which he bought. In many cases his ability to 
do so is due to the fact that he meets the convenience of the 



Rapidity in tunii?ig over Stock 127 

public. He sells in small quantities and near their doors ; he 
sells all sorts of different things that they want so that they 
do not need to go about from place to place to get their 
various requirements. Of course, in so far as he is engaged 
in a carrying trade and brings things from a greater or less 
distance he may be said to be engaged in a branch of in- 
dustry and to be putting things where they are wanted. 
The justification of such gains, and the possibility of dishonest 
gains from trade, will be considered below. In the meantime 
it may suffice to say that the trader expects when he turns 
over his stock not only to have his capital replaced, but to 
have it replaced with a gain ; and unless this expectation is 
fulfilled, he cannot and will not think it worth while to 
continue to undertake the thankless task of catering for a 
public who do not wish to have the things he is ready to 
supply. 

{c) Now it is obvious that the more rapidly he is able to 
turn over his stock and to get the accruing gain the larger 
will his profits be. The man whose capital is engaged in 
arable farming can only turn over his stock once a year ; the 
flower-girl will try to turn over her stock once a day. There 
may be the greatest difference in the rate at which re- 
placement can take place in different trades. A Bond Street 
jeweller cannot in all probability accomplish the feat in one 
year, or indeed in several years, while the ordinary haber- 
dasher will wish to turn over his stock twice or four times a 
year, so as to provide the necessary variety for each season. 
But in any case the desire is to turn over as rapidly as may be, 
and not to keep on hand a mass of goods which have not 
attracted public taste, and which are less likely to find 
purchasers at remunerative prices if they are stored still 
longer ; hence the sales at enormous sacrifices which force 
themselves on our attention at the close of the season. It is 
obvious, too, that the system of cash payment is advantageous 
to the dealer, because he is able to get his capital replaced 
more quickly, and thus either to turn over his stock more 
frequently in the course of the year or to do business on a 
larofer scale. 



128 The Replacement of Capital [Ch. IX. 

This is, of course, an object at which he will aim, as in 
most branches of commerce there is very little additional ex- 
pense in carrying on the concern on a large scale. If there 
is profit to be made at all, the more capital is available the 
larger the sum obtained will be, and it may be secured at 
the same or even at a better rate. A period of high prices 
will enable him to expand his trade, as he not only has the 
opportunity of saving and adding to his own capital, but he 
can also obtain the use of capital more easily as he has better 
credit for borrowing. But it is more important to lay the 
foundations of steady growth. Hence the more a man can 
force new business connexions, and find purchasers for his 
goods in different districts or different parts of the world, the 
more certain can he be of a regular trade, as he is less 
exposed to the fluctuations which are due to severe local 
depression. But whether he is dealing on a large scale or a 
small, the gain accrues when his capital is replaced by pur- 
chase. The precise gain he makes each time his capital is 
replaced must of course be due to the success of his specu- 
lation, or more properly to his skill in forecasting the require- 
ments of the public and his success in meeting them. But 
although his gain comes from a series of transactions, and 
from turning over his stock in longer or shorter periods, it is 
convenient for purposes of account to reckon the returns 
annually, and thus the profit he makes in the course of a 
year from all his dealings, be they many or few, may be re- 
garded as the income from his capital, and an income which 
accrues to him from his success in catering for the require- 
ments of the public. 

3. There is much greater difficulty about the replacement 
of capital that is employed in industry ; for the manufacturer 
does not, like the trader, use his money merely to buy certain 
goods and sell again. The cotton-spinner is engaged in 
carrying on a process, and he has to keep himself provided 
with all the things that are requisite for this process. If his 
business is to be kept going, each part of the process must 
be organised on a scale which makes it fit in with the other 
parts of the process, so that the whole undertaking from the 



Requisites for Co?iti?iued Productioft 129 

time when the raw material is received till the finished goods 
are delivered shall be carried on continuously as a going con- 
cern. His capital is replaced through the sale of the goods, 
but his stock-in-trade has to be maintained in all its various 
parts, so that the complete process may be constantly pro- 
ceeding. 

{a) This brings us to consider the parts of which a manu- 
facturer's capital consists at any given time. We shall find 
it in the simplest form if we consider what the Roman capi- 
talist had to provide who carried on the manufacture of wine. 
He had, of course, to work the vineyard for the produce, and 
this was done by gangs of slaves, who were chained as they 
worked all day, and had no relief from their bonds when they 
were driven to the miserable underground prison, with its 
narrow windows, where they passed the night. The owner 
had of course to supply them with clothes and food ; the 
proper quantities of both are carefully calculated by Cato. 
He also had to furnish the necessary buildings and instru- 
ments for pressing the grapes and manufacturing the wine, 
and the necessary casks for taking it to market. The whole 
fund of wealth which was necessary for carrying on the pro- 
cess may be roughly classified in three parts ; the materials 
required, the tools, including the buildings, and the slaves, 
with their food. In the case of free labour the workers cease 
to be part of the property, and they are not to be themselves 
included in the fund of the manufacturer's possessions. But 
as he needs to be able to procure labour in order that the 
process in which he is engaged may continue, he has to pro- 
vide himself with the means of hiring labour with food or 
with money. His capital will then consist of (i) Materials, 
(2) Instruments, including buildings, all of which may be 
named tools, and (3) the means of hiring labour, which we 
may, for the sake of simplicity, specify Food. 

(J?) There has been a good deal of discussion in recent 
times as to this old-fashioned way of enumerating the things 
that make up the capital engaged in industry at any given 
time. It is obvious that the capital must include materials^ 
and materials in every stage of the process, so that the work 



130 The Replaconent of Capital [Ch. IX. 

may go on steadily and continuously, and it is equally obvious 
that it includes all tools — the mill and the plant which is en- 
gaged in the manufacture. But there is a difference of opinion 
about \!^^food. It is said that the capitalist does not require 
to provide for the payment of wages, because the labourers 
have given him the value of their services before he pays 
them anything. It is said that in paying wages he does not 
draw upon his fund, but only restores in another form the 
value he has already received by the labourers' work. 

Now all this is perfectly true, and it has important bear- 
ings on many matters connected with the remuneration of 
capital. It is conclusive against those economists who said 
that the capitalist deserved remuneration because of the ser- 
vice he did to the labourers in making them an advance of 
food. He does not make them an advance of food, and there- 
fore he does not deserve to be paid for doing it. As a matter 
of fact he is not paid for doing it, or for conferring any bene- 
fit on the labourers ; he is not a salaried philanthropist. He 
simply gets a gain from the public because he succeeds in 
catering for the taste of the public and making things which 
the public wishes to buy. But in order to carry on this pro- 
cess he must have a fund of wealth of different kinds, and 
part of it must be of a kind with which he can hire labour. 
If he has not the means of hiring labour the process cannot 
continue, and even if he has a stock of half-manufactured or 
of finished goods he cannot hire labour unless he has some- 
thing the labourer will bargain for — Food or Money. His 
capital consists of the things that are necessary to carry on 
the particular process of production in which he is engaged, 
and he must have command of the means of hiring labor. 

The difficulty on this point appears to have arisen because 
economists have not kept clearly in view the two aspects 
under which capital may be regarded— its services to the 
public and its connexion with the labourers who are hired to 
carry on industrial processes. The capitalist is the middle- 
man ; it is he who comes in contact with the public ; the 
labourer has not direct relations with the public, but only 
through the middleman. The capitalist administers capital 



The so-called Wages Fund 131 

so that the whole process of production may go on. He con- 
fers a service if you like, not because he makes advances to 
the labourer, but because he so administers the process of 
production that there is a saving of time for the public. To 
manage this he has to take account of the process in all its 
parts. His success in catering for the public depends on his 
success in hiring labour and in buying materials. His fund 
of wealth gives him the means of doing both, and all that he 
uses to keep the whole process in steady operation is rightly 
considered his capital. 

Nor is the matter altogether trivial, for a clear apprehen- 
sion of this distinction may help to set other matters in a 
true light and show us the absurdity of arguing that the men 
may be fairly regarded as paying the capitalist by allowing 
him profits for the service he renders to them. We ordinarily 
say that the capitalist pays his labourers, and so he does ; he 
very seldom pays them in advance, and those economists 
who thought he always did made a great mistake. The 
employer does not indeed set aside any fixed and unalter- 
able quantity and call it a wages fund, any more than he 
sets aside a fixed and unalterable quantity which he calls a 
materials fund, and refuse to pay more or less. If materials 
are dear he must pay more if he wants to get them ; and if 
wages are high, he must pay more in order to hire labourers, 
and he is quite prepared to pay more than he estimated for 
either one or the other if he sees that he can make it answer. 
But in any case, the payment made to the labourer for his 
work passes through the hands of the capitalist and is ad- 
ministered by him. It is true that work is put in before 
money is paid out, but what the labourer wants is money, 
and money is paid by the employer. 

There appears to be an impression that since valuable work 
is put in before valuable things are given to the labourer for 
it, the capitalist's fund of objects of value is not liable to be 
drawn on for the payment of wages. I cannot feel sure that 
the precise time of payment affects the matter so greatly ; if 
the employer hires his men on the understanding that they 
shall ha,ve a week's notice, he is always liable for a week's 



132 The Replacemefit of Capital [Ch. IX. 

payment beyond the remuneration for work done. The im- 
portant thing is that they look to him for payment, and that 
his stock for carrying on the business must include things of 
the kind that they will accept as payment. The value of the 
part of his stock which consists of half-manufactured and 
manufactured goods would be of importance if the business 
were to be wound up, but it does not afford the means of 
paying labour and carrying the business on unless the em- 
ployer uses it as security for obtaining a loan. The increased 
value of some part of his stock does not enable him to dis- 
pense with another part of stock altogether ; the process of 
production cannot be understood if it is all stated in terms 
of value. The capitalist does not produce abstract objects of 
vame, he produces cotton-yarn or boots, or steam-engines. 
The whole question is not as to the greater or less value of 
the capitalist's fund at any time, but as to the precise things 
of which the capital must consist ; it must consist of the ob- 
jects of value called material in all its stages, and of the objects 
of value called tools, and of the means of hiring labour, or the 
process cannot go on. The precise terms of the bargain made 
with the labourer do not alter the fact that the labourer looks 
to the capitalist for his pay and that the capitalist must have 
the means of paying him. 

So far as the public is concerned the labourer's share of 
the work is merged in the process which is carried on by the 
capitalist ; it is only with the capitalist that the public have 
to deal ; he is responsible for the whole affair. It is from his 
relations to the public and his success in catering for them 
that the capitalist engaged in industry derives his gain. The 
whole of the things which are requisite to carry on the 
process and thus to procure a return are the capital which 
he uses to get an income. And the corn or money with 
which he hires the labourers is an essential part of this fund. 
According to the definition of capital with which we have 
started there can be no doubt that this element ought to 
be included. Only if we had limited the application of the 
term to capital which is employed in industry and defined 
it as 'wealth which is used to produce more wealth,' would 



Extensio7i of Busitiess 133 

we be justified in excluding from the conception such wealth 
as is used to reward the labourer who has already produced 
more wealth. Here once again it may be said that our 
definition justifies itself, since it accords with the common- 
sense opinion as to the constituent parts of a mill-owner's 
capital. 

{c) When we thus notice the complex nature of the con- 
stituent parts of capital employed in industry we see that 
its replacement, or the turning over of such capital, is a 
constant process ; it involves on the one hand purchases by 
the pubhc of the products manufactured, and on the other 
hand the restoration of all the various parts of the producer's 
stock, — materials, tools, and food, — so that the process of 
production may continue. But this at least is clear, un- 
less the product is purchased the capitalist finds himself 
stranded. He has a stock of finished goods which he cannot 
sell, and till he can sell them he has no means of purchasing 
more materials, of repairing his tools, or of hiring labour. 
The sale of his goods is the primary means of replacing his 
capital in the forms of money, and of thus supplying him 
with the means of replenishing all the different parts of his 
stock-in-trade. 

It is perhaps worth while to add that the inducement for 
the manufacturer to extend the scale on which his business 
is done is even stronger than for the commercial man. The 
trader in expanding his business can carry on more trans- 
actions at presumably the same rate of profit, while the 
manufacturer can in all probability complete additional 
transactions at a higher rate of profit. The division of 
labour can be carried further, there is more scope for the 
introduction of machinery, and industrial business conducted 
on a large scale will generally be more profitable than the 
same business could be if it was less extensive. The supply 
of manufactured articles at all events can generally be in- 
creased at a diminished rate of expense, and hence there 
is a constant tendency for the manufacturer to expand his 
business when the opportunity occurs. A period of high 
prices will give him the opportunity of manufacturing more 



134 The Replacement of Capital [Ch. IX. 

largely and extending his connexions as the trader does. 
He will make rapid sales and turn over his capital quickly, 
and he will strain every nerve to make the utmost use of 
the opportunity while it lasts, and supply goods which go 
off so quickly and bring in such a satisfactory gain. But the 
manufacturer will also seize any chance of so improving his 
plant that he can produce more cheaply, and thus be better 
able to hold his own if a period of depression should super- 
vene. It is thus that success in any industry tends to an 
increase of the supply of that kind of manufactured goods 
not merely temporarily but for a considerable period, and 
if the increased plenty brings it within the reach of a new 
or a larger purchasing public, it will give the enlarged trade 
a firm and permanent footing. 



II. The Kate of Replacement. 

1. If lent capital is not replaced, that is to say if the 
borrower does not repay his debt, it is eventually wiped out 
with more or less of personal inconvenience to the lender 
and to the borrower. The history of proceedings in bank- 
ruptcy affords numerous illustrations of this state of affairs. 
The capital has gone, or most of it has gone, and there is no 
use in crying over spilt milk. The immediate result probably 
is that someone, be it the lender or be it the borrower, or 
both, finds that less wealth passes through his hands and 
that he has less power of spending. The bankrupt's credit is 
gone and the lender's income is diminished, and neither one 
nor the other can afford to be purchasers to the same extent 
as formerly. 

2. If commercial capital is not replaced, it does not merely 
disappear ; it continues to be locked up in a stock of goods 
which the dealer cannot dispose of. He might indeed force 
a sale at a price which would not repay him for his original 
outlay, but he has no motive to do this unless the stock is 
actually spoiling on his hands ; for if he had the money he 
would not know how to use it when trade is bad and no 
purchasers are forthcoming. He would have to let it ' rot irj 



A Glut 135 

the bank,' and he would practically forego all chance of 
gaining anything by it beyond what is absorbed in his office 
expenses. Hence it comes about that he is left with the 
stock on his hands, and he in his turn ceases to be a pur- 
chaser, for he has no money with which to enter into new 
commercial speculations. 

3. {a) Still further, if the capital employed in industry is not 
replaced, the process of production must stop or can only 
continue on a smaller scale. The manufacturer's warehouse 
is glutted with finished goods which no dealer will purchase, 
and the manufacturer is thus unable to obtain the money 
with which to replenish the various kinds of stock he re- 
quires. This may be the manufacturer's fault or it may be 
his misfortune ; he may have entirely overestimated the 
probable demands of the public for whom he caters, or rival 
manufacturers may have done so and flooded the market 
with goods ; or the public taste may change and leave him 
with his stock on his hands, and a large portion of his 
capital locked up in finished goods. And then the process 
of manufacture may come to a standstill altogether. The 
manufacturer in this plight will incur a loss by going on, but 
he incurs a great loss also by reducing his business as he 
is forced to do. He can neither repair his tools, nor pur- 
chase materials, nor pay wages unless he procures money 
somehow. Probably he will try and reduce every expenditure 
and keep going somehow ; but this must be a serious loss 
to him. Part of his plant must stand idle, and this is in 
itself a loss, while the whole will deteriorate from want of 
care and attention. He can expend but little on materials, 
and he must reduce the sum he uses in hiring labourers, 
either by hiring fewer or by paying each man less, or in 
both ways. There must be a frightful shrinkage in the 
fund he uses for carrying on the business, and in every 
way his power of purchasing is greatly diminished. Both 
the expenditure he himself makes on tools and materials 
and the expenditure made by his employes on food and 
clothes is necessarily cut down. The process of production 
goes on slowly or comes to a stand-still, when the extent of 



136 The Replacement of Capital [Ch. ix. 

the shrinkage of capital invested in tools may be measured 
by noting the small sum which the works and plant will 
fetch ; though the effects of the loss of that part of capital 
which he uses to hire labour, — the misery of those who are 
thrown altogether out of employment, with little hope of 
finding it again in the depressed condition of trade. — cannot 
be so readily assessed. 

{b) As all branches of business are closely interconnected, 
the disasters which affect one class of society run through 
the whole ; but the connecting links through which the 
mischief extends are most noticeable when we consider 
the replacement, or rather the non-replacement, of capital. 
The hitch may occur at any point. There may have been 
a vast amount of wealth accumulated, and this may have 
been borrowed by a foreign government ; perhaps it ceases 
to pay interest, and leaves the creditors in doubt about 
the principal. These creditors, with diminished incomes, 
purchase less ; so too does the foreign government and its 
overtaxed subjects. The dealers who usually supply them 
have their stocks left on their hands, and cannot buy from 
manufacturers, and they in their turn must diminish the 
production. When things go as far as this, business of every 
kind is likely to come to a standstill ; and no one knows 
where to look for a revival of trade. On some occasion 
it is a failure of credit and the loss of income on borrowed 
capital that has reacted upon industry. Or the obstacle 
which brings about this slackening and stoppage of trade 
may come from the other side. There may be a succession 
of bad seasons, so that (if corn cannot be imported) food 
is dear, and even with the high price many farmers cannot 
make both ends meet. Agricultural labourers have less to 
spend, and all labourers have to diminish the amount of their 
purchases of clothes and food. The capital of the farmer is 
not replaced, nor that of the manufacturers who supply him 
and his people, and thus industry receives a check from the 
diminished consumption. 

{c~) In either case the outward and visible sign of this 
depressed condition will be found in warehouses packed with 



Depression of Trade 137 

goods ; there is an apparent superfluity of wealth of every 
sort, and it appears that the mischief must lie in over-pro- 
duction. The error of capitalists in judging of the real 
requirements of the public for whom they cater may — like 
bad seasons or the faithlessness of borrowers — be the first 
hitch which puts the whole machine out of gearing. But the 
mischief is always due to some destruction of purchasing 
power ; either the power of purchasing which rentiers possess, 
or labourers or capitalists. Life is a process, and the accu- 
mulation of fat, or the distention of some part of the body, 
shows that the process is going badly. So the economic life 
of any community is a process, and the material well-being 
of all is most likely to be secured when that process is going 
on smoothly and continuously and rapidly. The check to 
the process, from whatever side it comes, is sure to lead to 
gluts, as checking a stream is sure to lead to floods. 

Hence the evil can only be removed by something that 
sets the process going again ; thel)ld obstacle may disappear, 
or some new channel may be cut by which the floods escape, 
and the stream flows on once more, but in a different bed. 
A good harvest may help to set things right, however the 
evil has been caused, by giving some persons more means of 
purchasing. The outbreak of a war may cause a sudden 
and unexpected demand, and give a stimulus to certain 
trades ; or some new enterprise may be devised which absorbs 
a good deal of the existing stocks and gives a stimulus to 
production. The stoppage of the process and the consequent 
glut comes from a deficiency of purchasing power, and when 
purchasing power is brought to bear, either through the enter- 
prise of capitalists, or the necessities of Government, or the 
bounty of nature, the process will continue once more. 

{d) It is in this way that the action of capitalists who 
take advantage of a period of depression to enlarge their 
premises may be a means of removing the existing evil. 
They purchase bricks and machinery, and this helps to set 
the stream in motion once more ; stagnation is the evil ; the 
least sign of a new movement indicates that the stagnation 
is at an end, and gives those who are possessed of money or 



138 The Replacement of Capital [Ch. ix. 

credit more hope of being able to use it to advantage, and 
more willingness to try. But if the stimulus comes from a 
new direction, and not from the quarter in which the original 
obstacle occurs, industry will work on somewhat different 
lines from those which it previously took. Some trade may 
have ceased to be so profitable, say the ship-building trade, 
and it does not recover, but capital finds remunerative em- 
ployment in electric lighting or in making bicycles, and the 
whole industrial process goes on as fast as before, though in 
rather different forms. 

4. {a) The economic difference between a prosperous and a 
distressed condition of the community may be most easily 
expressed by saying that the process of production goes on 
very rapidly in one, and but slowly in the other. If things 
are made fast they are plentiful, and they may even be used 
to purchase the corn which cannot be supplied at home at a 
faster rate. There is a great deal of work done in the year 
in some place, and therefore there is much that is available 
for human use. On the other hand, in bad times there is 
very little done in the same time, and therefore there is very 
little available for use. When trade slackens off the process 
becomes slow, and everyone has to adjust his habits of life 
to a condition when less is available for use ; it is here that 
the shoe begins to pinch. The sign of the evil is in the glut 
of goods, but the cause of the evil is in the checking or 
slackening of the industrial process. So far as this is a 
general evil in a community, it can only be cured by some 
change that sets free some purchasing power ; in so far as 
it is an evil that is special to one trade, and that arises from 
misjudged production, it cannot be rectified by any change 
that would perpetuate a slower method of production, — by 
' making work ' in any fashion, or maintaining hand-labour 
to the exclusion of machine-work. This is to create new 
obstacles, not to make the stream flow more rapidly, and 
capital, with its funds for buying materials and for hiring 
labour, will not turn to those directions where the stream 
flows slowly. 

{b) The consideration of a period of depression may have 



The Waste of Capital 139 

helped to bring out the fact that in one way or another there 
is an enormous amount of capital which is never replaced, 
and which is accordingly wasted. Not merely does it cease 
to be used to procure income, but it altogether ceases to be. 
It is no longer used as capital, and it ceases to be wealth. 
There is the waste of capital which is involved in injudicious 
loans, and is represented by bonds that are not worth the 
paper on which they are printed. There is the waste of 
capital in stock that depreciates, and there is the waste of 
capital that cannot be realised. Goods a man may always 
be able to get something for, but money sunk in plant or in 
buildings is much more difficult to realise. This is a most 
obvious source of the waste of capital ; there are so many 
enterprises that look well on paper, and that cannot be tried 
without a large initial expenditure. Such is the preliminary 
outlay in opening mines, which prove most disappointing, or 
in building railways which do not pay their working expenses. 
But more than this, every improvement in any process of 
production involves the waste of a large amount of existing 
capital. Old plant is superseded long before it is worn out, 
or new inventions do away with the need for some old line 
of business. The great scare about gas-shares when electric 
lighting was first introduced, and the manner in which canal 
traffic has shrunk as the railway system developed, are cases 
in point. In all these cases there is a frightful loss to indi- 
viduals and waste of capital, though the effects on the pros- 
perity of the community are by no means the same when 
capital is wholly wasted in opening a useless mine, or when 
its use is superseded because some better means has been 
discovered of doing the same work. 

Partly then through bad faith or human error and mis- 
calculation, and partly through new applications of human 
skill superseding old ones, there is a continual waste of 
capital, a waste of capital that is a terrible evil, but that 
cannot be altogether avoided so long as man's legitimate 
expectations are falsified ; it is part of the price we pay for a 
further advance in progress. It is not easy to see that any 
scheme could be devised which would get rid of these ele- 



140 The Replace?nent of Capital [Ch. IX, 

ments of waste ; and herein lies the lasting importance of 
the new formation of capital ; new capital is constantly 
needed to repair the waste that is always going on. 

{c) If there has been, in any serious commercial crisis, not 
only a collapse of credit but a great waste of capital, the 
depression that follows will be likely to continue for long. 
The relief can only come by the introduction of some new 
purchasing power, but if there is little capital seeking invest- 
ment no new enterprise can be floated, no foreign govern- 
ment can borrow, and the new impulse to industry cannot be 
given. Similarly, since prices are so bad and trade is so 
slack, it is very hard to form capital ; each man has to keep 
his business going as best he can, but he has no opportunity 
of saving, and enterprise is checked because it has not the 
material means of trying its best. 

5. It is thus by the purchase of goods, the replacement 
of capital, the replenishing of stock of all sorts, that a time of 
commercial prosperity is most clearly marked. It is not 
merely the symptom of prosperity, as the barometer gives an 
indication of fine weather, it is the thing itself. And hence 
there have been attempts at many times to stimulate the pur- 
chase of goods by arbitrary enactments, like the seventeenth 
century statutes for burying in wool. Such enactments did 
give greater prosperity to some one industry, and did attract 
capital to it ; whether there was any advantage in changing 
the direction of the employment of capital may well be 
doubted; the statutes had the immediate effect that was 
intended, and made that industry more prosperous for the 
time. Similarly, when credit is inflated and prices are high, 
there may be times of feverish prosperity when production 
is going on most rapidly, all mills busy, and employers eager 
to hire more hands ; it is real prosperity while it lasts ; un- 
fortunately experience shows that such prosperity does not 
last long, and that rapid production, though good in its way, 
is not the only thing we have to look to. Commercial 
prosperity is well, but there are also advantages in industrial 
stability. 



CHAPTER X. 

The Direction of Capital. 

I. The Fluidity of Labour and of Capital. 

1. Whenever the replacement of capital by purchase occurs, 
there generally is more or less opportunity for either continuing 
to use capital in the same direction as before or for applying 
it differently ; it is comparatively easy to change the character 
of commercial speculations, but it may be hard to withdraw 
from an old industry or try a new one. If the man of enter- 
prise has a great deal of capital invested in plaat and 
buildings he will not be able to withdraw his capital suddenly, 
but he may withdraw a good deal of it gradually, if the 
business is not remunerative, by simply refraining from any 
additional outlay. Every penny that he uses for repairs, or 
for substituting new machinery for old, is a farther purchase 
of stock for his old trade ; and in so far as he refrains from 
locking up more capital in the business he is keeping himself 
free to transfer his capital to some more profitable business 
if he can find one. The distinction between capital that is 
fixed in a particular trade and circulating capital cannot be 
easily defined for all the different kinds of industry, rural and 
urban, in precisely the same terms, because it depends on 
things, and not on what passes in the man's mind. No form 
of capital is absolutely permanent since all wears out in time, 
and the distinction turns on the frequency with which a man 
has to restore any part of his stock-in-trade ; his tools and 
buildings are relatively permanent ; his fund for hiring labour 
and his stock of material has to be constantly replenished, 



142 The Direction of Capital [Ch. x. 

and the man whose capital is chiefly in the form of circulating 
capital will have less difficulty in altering the direction in 
which he employs it than the man whose capital is chiefly 
fixed in tools or buildings of a permanent character. But 
whatever the difficulty may be in diverting capital from an 
employment in which it is already engaged, there is always 
choice as to how to use new capital when it is formed, 

2. So far as capital that is free to be directly or indirectly 
applied to industry or commerce is concerned, the main 
element in determining the owner as to the direction in which 
he shall use his capital will be the public demand for some 
article. If the public demand for any object is active, prices 
will be high ; the manufacturer will be glad to employ more 
capital in turning out goods as fast as possible, while new 
men will set up as competitors in a profitable business. On 
the other hand, the man of enterprise may fancy that he can 
stimulate public demand by supplying requirements in a better 
or cheaper fashion than has hitherto been done ; he hopes to use 
his capital so as to call forth a public demand. In either case it 
is the forecast of the capitalists — those who possess it, or those 
who have credit enough to borrow it — as to the probable demand 
and probable purchases made by the public, that determines 
the direction in which they use this wealth. If they forecast 
badly, and the public demand does not meet their expecta- 
tions, it is so much the worse for them, and their wealth will 
be wasted ; the fact that so much capital is wasted goes to 
show how often there are miscalculations about the public 
taste. But it remains true that the public requirements 
and public purchasing determines the direction in which 
capital is employed, even though capitalists are not always 
perfectly wise in interpreting the probable wishes of the 
public. One of the first great advantages of the co-operative 
societies and their association in wholesale societies is that 
they have the best opportunities of forecasting the tastes and 
requirements of the working-class public for whom they cater. 
It is obvious too that while rapidity in the replacement of 
capital is the feature of a period of commercial prosperity, 
facility in the change of the direction of capital is a condition 



Depressio7i of Trade and the Labourers 143 

which enables the pubhc to have what it wants on the easiest 
terms and at shortest notice. If the pubhc is fickle and 
always changing in its tastes and requirements, there will be 
a great waste of capital in the process of catering for it ; it is 
an extravagance to be always chopping and changing, but at 
the same time the possibility of doing so shows that the 
economic organism is highly flexible as well as highly powerful. 
It is ready to adapt itself to a change for the better or for 
the worse in public requirements. 

3. The waste which is involved in changing from one 
direction to another is obvious when we consider the part of 
the capitalists fund which is used for tools and buildings. 
But the mischief is more noticeable when we look at the part 
of capital which is employed in hiring labour. There is a 
change in public requirements, and a certain trade — the 
Coventry ribbon-trade — declines. Manufacturers withdraw 
their capital so far as they can, and do not continue to hire 
labour for this sort of production ; nobody knows at first 
whether it is a mere temporary depression or whether it is a 
permanent change in public requirements, except in those 
cases where machinery supersedes labour and there is a 
change, not in the public taste, but in the need of labour to 
supply it. Some of those who earn their bread by the 
industry are thrown out of employment, and others are hired 
on such terms that they have to go short. It may be most 
difficult for them to find any employment; they may be 
highly skilled labourers with hands accustomed to fine work, 
who dare not break stones or pick oakum. In the meantime 
no wages are coming in, the home gets more and more bare, 
and the man gets weaker in body and less fitted in habit for 
work when employment becomes open to him. It is clear 
that the sooner this state of things can be brought to an end 
the better, and it can only be brought to an end satisfactorily 
in one way, — by giving the greatest possible facilities for 
labour to become fluid and to follow the direction which is 
taken by capital. For though in times of general depression 
there may be no fresh call for labour from any side, the 
progress of enterprise is continually breaking 



144 The Direction of Capital [Ch. X. 

directions. Capitalists may see some chance of planting a 
new industry in the very place where the old has disappeared, — 
as the cocoa-nut matting manufacture has been localised in 
the room of the old Sudbury weaving, or as a cotton mill 
and bicycle works have sprung up at Coventry. This is the 
most satisfactory way out of the evil, because the opportunity 
is opened for hiring labour in a place where unemployed 
labour abounds. But it is not always easy to hit on a trade 
which can be settled in the place of a decaying industry, and 
the old hands may not have the training which will enable 
them to learn and to work at the new craft. The technical 
education given in secondary schools has in all probability 
this one advantage over the old system of apprenticeship, 
that it does something to give a man this facility of adapting 
himself to a new employment that opens up. But when 
capital cannot bring a new employment to the unemployed 
men in a town it is necessary that they should be able to 
migrate or emigrate to places where industry is flourishing, 
or at least continuing, and where there is a fair chance that 
they will be hired. Everything that promotes the fluidity of 
labour, and that renders it possible for a man to take advan- 
tage of new or of better opportunities of employment, is a 
vast benefit to the artisan. Labour bureaus that tell him the 
districts where work may be sought for do much to alleviate 
the distress which arises from the fluctuations of trade or 
the changes of trade. Great as the waste of capital may be 
in any change of direction, capital is much more fluid than 
labour, and flows more easily — with less loss and less priva- 
tion — than the man who is out of employment and has to pay 
his travelling expenses in looking for work, and who, when he 
finds it, has to break up his home and move his household. 
These evils are at least diminished by everything that 
renders it more easy for labour to adapt itself to the chasnge 
of public requirements, as shown by the change of the 
direction of capital. 

4. So far as fluctuations in trade and the depression of 
trade are due to the failure of the capitalist to forecast the 
public demand, they are a social evil which it is most desir- 



Doomed Ijtdtistries 145 

able to diminish ; they lead to a waste of capital and terrible 
privation to the labourer, and the more industry is organised 
on a large scale under the management of one or two firms 
who can feel the pulse of the whole trade the less likely is 
this to occur. But some of the changes in the direction of 
industry are due to real changes in public requirements, or 
to new discoveries and inventions. The migration of many 
iron works from the Midlands to South Wales has been 
forced on by the desire of the owners to avoid costly railway 
rates. The working out of certain natural products, — coal 
or other minerals, or a change in the habits of fish, may 
affect other districts ; while the progress of machinery is 
continually superseding domestic and hand industry and 
drawing the workers into factories. Progress involves 
change, and change in the direction of industry as well as 
change in other ways. While great mischief and misery 
accompanies every such change, true philanthropy will not 
endeavour to set limits to the change, but to enable the 
labourer to adapt himself to the inevitable possibility of 
change as readily as may be. 

5. (a) From this point of view it appears that there can be 
no greater mischief done to the labourer than that of in- 
ducing him to cling to a doomed industry ; that is, an 
industry which is being obviously superseded and must 
necessarily die out. To help a man to drag on a miserable 
existence as a hand-loom weaver and to encourage him to 
train up his children to it is not a kindness ; there are parts 
of the country, as Ceres in Fife and Church Stretton in 
Shropshire, where it lingers on; and possibly through the 
peculiarities of local requirements it may be continued in- 
definitely in such places. But on the whole it is dying out; 
and wherever it is a struggling industry it is unlikely to 
revive. True philanthropy will endeavour to make the 
change as easy as may be, and tide over the transition with 
as little suffering as possible by temporary relief, if need be, 
but it will never tempt men to condemn themselves to a 
life-long and hopeless struggle by encouraging them to 
remain in a decaying industry. 



146 The Direction of Capital [Ch. X. 

{b) This matter is of considerable importance in regard to 
certain branches of rural employment. The widening com- 
merce of the present day has enabled us to draw our corn 
from the most distant and fertile regions in the world, and 
has thus caused the British farmer to feel the effects of a 
fierce competition. This may possibly lead to considerable 
changes in British agriculture, and give more scope for 
market gardening and dairy farming, on one hand, and for 
pasture farming on the other. It may lead to a change in 
the character of British agriculture and a corresponding sub- 
stitution of small holdings and large ranches for our present 
farms. But in so far as our present arable farming continues, 
it is not likely that the verdict of last century will be re- 
versed, and that small holdings will prove superior to large, 
or that a cultivating peasantry will weather the storm more 
successfully than the capitalist farmer. But, if British agri- 
culture is to undergo a change, it will be most likely to do 
so in the outlying districts and poor soils which present the 
greatest difficulties to the cultivators. The Skye crofter and 
the Galway peasant have to bear the brunt of the struggle 
under which many English farmers have succumbed, and 
they have to bear it while they still practice such modes of 
cultivation as proved the ruin of the English yeomanry. 
Politicians may be wise who desire to root these men firmly 
to the soil, so as to provide a population from which recruits 
may be drawn for the British army. But it is not the part 
of true Irish patriots to condemn the finest peasantry in the 
world to a hopeless struggle for existence in order to attain 
this imperial object. Philanthropists must know that if 
men are unconsciously condemned to desperate and hopeless 
poverty they have little opportunity of improving in moral 
and intellectual well-being. They ought to be able to show 
that the Galway cottier can compete successfully with the 
American grower before they encourage him to attach him- 
self more firmly to an unkindly soil. So far as the fisheries 
or the kelp-burning have ceased to be remunerative, his 
resources are diminished. If the foregoing forecast is correct, 
it is clear that the cottier's position is nearly as hopeless as 



Changes of Public Demand 147 

that of the hand-loom weaver, and that the case can only 
be met by encouraging him to change, not by tempting him 
to stay as he is. 



II. Productive and Unproductive Consumption. 

1. If there is no change in the direction of industry, the 
public will continue to purchase, and the capitalists will have 
their capital replaced. If this process goes on fast there 
will be a time of prosperity, and if it goes on slowly there 
will be a time of stagnation ; but the industry of the country 
will continue along the same lines. But if public demand 
changes it may alter in one of two ways ; there may be a 
greater demand on the part of the public for the things that 
are requisite for maintaining the processes of productien, or 
there may be a greater demand for the things that are used 
up without helping to further production. Technically there 
may be an increased demand for articles of productive 
consumption, and there may be an increased demand for 
articles of unproductive consumption, — on the one hand for 
tools and food, on the other for flowers and perfumes. If 
either of these is an increased demand, and not made at the 
expense of some existing demand, it will undoubtedly tend 
towards increased commercial prosperity; it gives a new 
opportunity of employing capital and a new occasion of 
hiring labour, and in such a case the effects of all kinds of 
expenditure are similar. 

2. But we must also look at the case where there is a 
change in the public demand, and the new things are sought 
for in preference to something that has been previously 
supplied. There will of course be all the evils that arise in 
the change from one kind of employment of capital to 
another, with the subsequent privation of the labourers in 
adapting themselves to the new conditions. If people had 
fewer hangings in their rooms and spent the money instead 
in decorating more with cut flowers, there would be less 
employment for the weavers of curtains than before and 
more employment for gardeners. It is possible in such a 



148 The Direction of Capital [Ch. X. 

case that the change would be from an industry in which 
labour played relatively a small part, because machines are 
much employed, to one where a large part of the capitalist's 
fund consists of means for hiring labour ; such changes in the 
direction of industry may be immediately beneficial by calling 
out a demand for labour, entirely irrespective of the manner 
in which the commodities obtained are eventually consumed. 
In order to see the full significance of such a change, 
however, we must try to view the matter in its ulterior rather 
than its immediate effects, and to contrast the results of a 
gradual change by which more and more productive con- 
sumption is substituted for unproductive on the one hand, 
or unproductive consumption increased at the expense of 
productive on the other. 

{a) If there is an increasing productive consumption, then 
more and more capital will be directed into furnishing the 
requirements for future production, that is to say, tools and 
food. It may be assumed, since Malthus published his Essay, 
that when more food is available population will increase ; 
and thus there will be a steady tendency to provide the two 
great forces which carry on the work of production, — tools 
and food. It must be remembered, of course, that there 
cannot be an infinite increase in the supply of food, or an 
absolutely unlimited addition to the numbers of the popula- 
tion ; but as capital and labour were set free by improvements 
in any other direction, they could be applied with increasing 
enterprise to wring more food from the soil. The continuous 
increase of productive consumption at the expense of un- 
productive would apparently lead, in so far as other social 
habits were unchanged, to a larger and larger mass of 
population on the globe engaged more and more strenuously 
in the production of wealth, and peopling up to the limit 
which each increase in production supplied. 

If, however, we look at a smaller area, say at any single 
country, we may say that the increase of productive con- 
sumption at the expense of unproductive renders any country 
rich in tools and buildings and in the means of supporting 
labour. With these requisites the country will be able to 



Expendit2i7'e on Wars 149 

supply its wants whatever they are, and to meet any un- 
expected demand upon its resources, — such as a war, — more 
easily than could otherwise be the case. It has a large 
population on which to draw for recruits, and plenty of 
appliances for equipping them satisfactorily. 

{U) But the war itself is an unproductive expenditure ; 
supposing it continues for some time, there will of course be 
an active demand for munitions of war, and those who supply 
them will enjoy great prosperity for the time which kindred 
trades will share. But there will be a drain of men to go to 
fight ; they will be diverted from cultivating the ground and 
producing more food, and the arable area may decrease, 
especially if the army is victualled abroad ; and the resources 
of the country, instead of being devoted to the replenishing 
of its stock of tools and appliances, will be blown away with 
no material result. The war may be positively necessary, 
but for all that it is costly, because it diverts the energy of the 
nation into supplying means of unproductive consumption, 
and thus leaves it less well supplied with a stock of buildings 
and tools, and less well able to provide a proper supply of 
food. Whether the expense of the war ifs met by heavy 
taxes, or by borrowing and thus spread over a period of- 
years, is unimportant from this point of view. All that has 
to be noticed is that the expenditure, however wise and how- 
ever necessary, is unproductive, and that the country is 
exhausted by such expenditure, and less able to continue the 
production of wealth at the old rate and in the old way when 
peace returns. The decay of a territory like the Southern 
States, where the struggle was waged with such severity, and 
where, when it was over, there was difficulty in borrowing 
capital to start industry afresh, may serve to illustrate the 
nature of the enormous evil that is caused by unproductive 
consumption. 

{c) Comparing the two, then, it appears that an increase of 
productive at the expense of unproductive consumption in 
any nation tends to increase the facilities which it enjoys for 
continuing to carry on the industrial processes as rapidly or 
with increasing rapidity; while the substitution of unpro- 



ICO The Direction of Capital [Ch. X. 

ductive for productive consumption tends to material 
exliaustion and to a state where it can only carry on indus- 
trial processes with difficulty and slowly. A change in public 
requirements which turns capital from one direction to 
another and to making articles of luxury instead of requisites 
of production, tends towards national impoverishment ; unless 
indeed the articles of luxury are produced for export and for 
foreign consumption ; in such case this kind of industry may 
be the easiest means by which a community can buy, and 
therefore provide itself with certain requisites of future 
production it cannot produce. The Sciily islanders may do 
well to grow flowers in order to purchase corn and clothes 
and spades. 

3. But it is obvious that in every country there is likely to 
be a certain amount of both kinds of production, and that the 
tendency to exhaustion only arises when unproductive is 
substituted for productive consumption, or, as we may say, 
trenches upon it. We might also measure the wealth of any 
community by noticing the amount of riches it can devote to 
unproductive consumption without trenching on the supply 
of the requisites of production. If the inhabitants of any 
land are able to live in great luxury for a long period without 
exhausting the resources of their country and its dependencies, 
and without trenching on the requisites of future production, 
it must be a very wealthy land. There was such exhaustion 
in ancient Rome, for the wealthy citizens not only drained 
the resources of Italy, but impoverished the provinces so 
that they could offer no effective resistance to the barbarians. 

{a) The possibility of unproductive consumption without 
exhaustion is the great indication of a wealthy nation. It 
would seem to follow that, since it is good to be wealthy, it is 
good also to have a large unproductive expenditure. And 
this is so. It is not the chief end of man to produce more 
goods, or to provide the requisites of production in greater 
and greater abundance. It is a good thing to have plenty to 
spend, so long as you spend it well. The question of produc- 
tive and unproductive consumption is important, for in it lies 
the secret of the continuance of national prosperity ; but it is 



Useful but U7ip7'oductive Expenditure 151 

not so important as the question whether the unproductive 
consumption of the nation is wise or unwise, for therein lies 
the secret of the improvement or the degradation of the 
national Hfe. 

{h) Expenditure on education and art and the cultivation of 
taste and the improvement of human faculty is unproductive ; 
only in slave countries can the training of human beings be 
regarded as the production of marketable wares. The man 
who teaches may be a useful person ; and even if he is not 
he may deserve to be paid for doing his best to improve 
human faculties and store human minds. All the expenditure 
that is made in investigation, and on moral or religious 
culture, is unproductive ; it is not therefore unwise, for indeed 
it is the possibility of securing such things in fuller measure 
that makes wealth worth having at all. 

But the unproductive consumption that merely gratifies 
passing whims, that ministers to selfishness on the one hand 
and rouses bitterness and jealousy on the other, this is 
indeed an evil; not because it does not tend to the pro- 
duction of more wealth, but because it is a misuse of existing 
wealth that breeds personal sin and social disorder. 

Wealth is not to be pursued for its own sake but in order 
that it may be well and wisely used. The wealth that is not 
used for the production of more wealth is not necessarily 
wasted ; it may be applied to much better purpose, as it may 
be used for much worse. And here it would seem that the 
consideration of the practical matters connected with capital 
can take us no further, for we are brought face to face with 
an ethical question as to the right and the wrong use of 
wealth when we have got it. 



PART in. 
PERSONAL DUTY. 



CHAPTER XI. 

Personal Responsibility. 

It is a matter of common complaint in the present day 
against Political Economy that it is either immoral or non- 
moral. To the hasty reader it has seemed to advocate 
selfishness, and there has been some excuse for this accusa- 
tion. In recent times, however, economists have endeavoured 
to evade it by assuming an attitude of rigorous and scientific 
impartiality. They do not profess to tell us what ought to 
happen but only what tends to happen under certain as- 
sumed circumstances — in a regime of free competition ; if 
they lay stress on self-interest, it is because self-interest is 
so dominant in human nature as we know it. But after all 
there are some of us who are eager not only to understand 
what tends to happen in society as it is, but also to see how 
far it is possible to hope that society may be kept from 
falling to a lower level in matters of right and wrong, and 
how individuals may be encouraged to struggle to live by a 
better standard than that which is current, and which 
economic science assumes as normal. 

Nor in so doing are we called upon to break fresh ground. 



S. T/iomas Aquinas 153 

Questions of duty in various economic relations were dis- 
cussed with much acuteness for centuries before the laws of 
supply and demand were formulated. The cases these 
earlier students had to consider were very different from 
those which occur in the present day, but it may serve as a 
suitable introduction to the problems we have to face in our 
complicated society if we try to understand the principles on 
which the schoolmen decided the simpler questions which 
they were called on to consider. 

Those who have interested themselves in trying to trace 
the history of economic doctrine in Christendom, find 
familiar topics treated from a standpoint that differs curiously 
from our own, when they turn to mediaeval writers like 
Aquinas. Economic affairs are discussed not with the view of 
practically promoting prosperity of the country as the mer- 
cantilists tried ; nor, as modern economists do, with the view 
of stating in general terms the principles on which people 
do habitually act ; but rather with the intention of dis- 
criminating right from wrong in personal conduct. These 
students might perhaps have admitted that, as modern 
economists assume, a man in driving his business tried to 
secure as much gain as he could for himself, — that this tended 
to happen ; and they knew that this was to some extent 
natural, and that it was right for a man to do with his might 
whatever his hands found to do. Yet they also knew that in 
all these things there was a danger of falling into sin. They 
wished to discuss how to draw a line which should show 
where men were falling into wrong in their monetary trans- 
actions, — for what actions they were to be condemned, and, 
if they persisted in them, excommunicated. They thus came 
to set themselves to define what was wrong. It was not 
their business to lay down a hard and fast scheme of duty in 
regard to industry ; they found the scheme of secular duty 
for their day was fairly expounded by the example of the 
monasteries — with a personal discipline of poverty, chastity, 
and obedience, a corporate care for the dependents on their 
estates, and a readiness to devote the gains of their trade 
to the glory of God in the beautiful fanes they raised for His 



154 Personal Responsibility [Ch. XI. 

worship. The cultivation of Christian graces in secular 
affairs, charity and so forth, were not the subject-matter they 
had primarily in hand in writing about economics ; but they 
wanted to denounce what was wicked, and to show when 
men were to be blamed for the manner in which they did 
their business. 



I. Degrees of Responsibility. 

1. These questions of wrong-doing and blame were much 
simpler in mediaeval times than they are now ; partly 
because transactions of every kind were less complex, but 
chiefly because in any case of wrong-doing it was much 
easier to say who was to blame, while we must take account of 
different degrees of responsibility. If work was badly done, 
the fault could be brought home to a bad workman, and it 
could be seen that he had been careless. But now that 
goods are manufactured in distant places, or vamped up in 
quantities to suit a public demand for cheap and inferior 
articles, it is very hard to say that the fault lies with any one 
in particular. No man is to be condemned for what he 
cannot help and does on external compulsion; a hero may 
resist the compulsion and perish, but a man is not neces- 
sarily guilty because he has failed to show himself a hero. 
In industry and trade as they were carried on in mediaeval 
times it was generally possible to bring home to any frau- 
dulent or extortionate dealer that he was the guilty person ; 
whereas in our complicated social system to-day it is very 
hard to say how far any man is free from external pressure 
and therefore is personally to blame. 

At the same time we may see that the difficulty of assigning 
the direct responsibility for any mischief does not exonerate 
us from the duty of trying to detect where the mischief lies ; 
it only makes it necessary for us to examine the matter 
more closely than the schoolmen were forced to do. If 
wrong occurs, not through personal greed, but because the 
habits of society or the law of the land is unsatisfactory, then 
every member of society and every free citizen is indirectly 



The Responsibility of Good Citize?is 155 

responsible for the mischief. We shall have to ask how far is 
any wrong due to personal sin, and therefore to be corrected by 
rousing the sense of personal duty, or by meting out personal 
punishment? or how far is it due to social conventions and 
customs and laws for which all citizens are indirectly respon- 
sible ? Hence we may say that personal responsibility is not 
less real than in old times. We are just as much bound 
to discharge that responsibility, but it has to be discharged 
in two distinct ways : not only in the affairs that practically are 
under our own present control and where the responsibility is 
direct and complete, but in affairs that can only be controlled 
and remedied by altering the customs of society and the law 
of the land ; then we are responsible in a less degree, because 
indirectly, but our responsibility is none the less real. This 
indirect responsibility could formerly be dealt with as the 
duty of the Prince ; he was responsible for the good govern- 
ment and the well-being of the people committed to his 
charge, but it has now come to be the indirect responsibility 
of each free citizen, as it was not in the times of feudal 
monarchies. 

2. There are many cases where the degree of responsibility 
has to be considered before we attempt to fix the degree of 
blame. Some years ago a considerable excitement was 
caused by the testimony of a working shipwright at Liverpool 
who explained the character of the very insufficient repairs he 
had been ordered to make in a ship, which was sent out in an 
utterly unseaworthy condition. It was said he ought not 
to have done such insufficient work under any circumstances, 
but the dishonesty was not on his part ; he earned what he was 
paid to do, and he was not responsible for it, though he was 
the agent by whom it was done. He did his own task ; the 
evil was that he was set to do the wrong kind of work, and to 
repair badly. But if he had played the heroic part, he would 
have been thrown on the world, and the fraudulent repairs 
would have been executed by someone else ; his heroism 
would not have prevented the mischief being done. It seems 
to me he was not to be blamed for doing the bad work under 
protest ; for this he was not directly responsible, he was 



156 Personal Responsibility [Ch. xi. 

acting under orders. He was also right in discharging his 
indirect responsibility, and calling attention to the evil at 
which others had connived, in the hope that it might be 
remedied by such legislation as Mr. Plimsoll proposed. 

Again, at the time of the first Factory Acts there were 
employers who felt that the women and children were being 
seriously injured by the drudgery to which they were exposed, 
and that their hours ought to be shorter. They were, how- 
ever, engaged in a business where the competition was keen, 
and where they may have honestly believed they could not 
alter the conditions of work without incurring certain ruin. 
It might have been heroic to court ruin, but it would not 
really have benefited the employers in that mill, and it might 
have put obstacles in the way of a more general movement. 
It may at least be argued that they were right to carry on 
their business personally on the lines of which they did not 
approve, and to endeavour to exercise their influence indi- 
rectly, by urging that a restrictive law should be passed for 
the whole country. 

3. There is thus a distinct difference between any mischief 
for which we are personally responsible, and any mischief 
that arises out of our conduct, but for which we are not per- 
sonally to blame because of external pressure. There is a 
much more strict obligation in regard to duties that fall 
within our own personal power than in regard to matters for 
which we have, in common with many others, only an indi- 
rect responsibility ; what is everybody's business is too often 
nobody's business. We cannot rate too highly the import- 
ance of the work done by those who make public business 
their own business, and thus prove themselves to be really 
good citizens. 

On the whole, however, current opinion is incKned to 
ignore degrees of responsibility and is satisfied with de- 
nouncing the agents through whom any hardship is wrought, 
without considering sufficiently where the ultimate responsi- 
bility lies. There are plenty of people who go looking for 
bargains, and purchase their furniture or their clothes at 
prices that ought at least to suggest that there is something 



Cojisiuners and Starvatio7i Wages lyj 

wrong somewhere about the means employed for pro- 
ducing such goods. It is all very well to denounce 
sweaters, but those who do so ought to be perfectly clear 
that their own hands are clean, and that their preference for 
cheap goods does not encourage dealers to cater for this 
requirement, so that they themselves are ultimately, though 
indirectly, responsible for some of the evil they deplore. 
There is always this double responsibility to be looked to, 
7'esponsibility for not doing our best to C2ire the evil, and 
respo7isibility for its existence. In the present state of 
society and in regard to the great mischiefs of the present 
day — overcrowding, starvation wages, and so forth — it is 
rarely that any individual can be definitely singled out for 
blame. It is the divided responsibility, or the indirect re- 
sponsibility, of many unthinking persons that makes the 
whole so difficult to deal with. But in the simpler society of 
mediaeval times there was no such divided responsibility ; 
the King, and not the people, was responsible for bad laws, 
and this or that man could be definitely pointed out as 
blameable for bad goods or unfair gain. 

There are very considerable difficulties about fulfilling this 
indirect responsibility for the good condition of the country 
in the obvious way, by using the influence each citizen 
possesses in favour of governmental interference to prevent 
wrong. But it may at least simplify the matter if we can see 
a clear rule as to cases where government interference is 
distinctly advisable. 

{a) The life and effective vigour of the population is one of 
the most precious of material resources ; and if any business 
is so conducted as to be seriously injuring them, then there 
can be no doubt that it is well to prohibit the continuance of 
practices of the kind. Thus, if little children are worked for 
long hours, and must necessarily, if they survive at all, be 
miserable and weakly men and women, it is obviously wise 
to interfere to prevent their working for such long hours. 
Legislation which aims at removing a positive evil, the 
economic effects of which are palpable, has very strong evi- 
dence in its favour. It is difficult to conceive any reasons 



158 Personal Responsibility [Ch. XI. 

for accepting such a state of affairs as inevitable, and for 
refusing to try to alter it by any method that is available. 
But the case is altered somewhat if the object is, not to 
redress an obvious evil, but to provide better opportunities 
for any class. Here we are at once brought face to face with 
a speculation as to how the opportunities will be used. Some 
men may make one forecast, and some another. It may be 
that the reduction of manual labour to eight hours would give 
the opportunity of a better life to many artisans, the oppor- 
tunity of better work during working hours, and of larger 
human interest in times of leisure. There is, after all, an 
element of uncertainty ; it is not quite clear that the shorter 
hours will be spent in more diligent and careful work ; it is 
not clear that the hours of leisure will be wisely used, and it 
is possible that there may be serious loss in consequence of 
the change both to employers and employed. Are we wise 
to run the risk? In such a question of practical politics as 
this the whole decision must turn on the estimate we make 
of certain probabilities. According to temperament, some 
men will make a more favourable and some a less favourable 
forecast; and the whole is removed from the sphere of 
rational argument into sjDeculating on probabilities. There 
can be no such plain duty to give better opportunities — the 
value of which depends on the way in which they are used — 
as there is to put down positive mischief. 

{p) On the other hand, in so far as it seems desirable 
to interfere, with the view of giving better opportunities, there 
is on the whole less likelihood of misuse, when they are given 
in connexion with work. Thus, the eight hours' day would 
be a boon to the man who worked, but it would make no 
difference to the man who did not work at all. On the other 
hand, the distributions of corn among the Romans, and the 
public provision for their amusement, were demoralising. 
The custom gave them a good time, but it did not really fit 
them to be more useful members of society. It is, of course, 
good that people should be amused — it is a wholesome 
thing ; if the monotony of life is relieved they will be brighter 
and more cheerful. But how far is it right that they sliould 



Physical Tests of Oppressive Conditiojts 159 

be amused at the public expense, i. e. that one set of people 
should be taxed to provide amusement for others? It is 
certainly doubtful. All that private munificence does for 
public recreation is good, but how far is it a duty to provide 
for recreation out of public funds ? How far is it demoralising? 
All this has to be weighed carefully with special reference to 
the precise form of each particular proposal, and there can be 
no such plain duty to provide facilities for recreation as there 
is to prohibit positive evils. 

{c) It may appear that this is merely a verbal distinction, 
and that every improvement in the condition of life might be 
expressed in either fashion. They provide better oppor- 
tunities just because they redress evils. Perhaps the distinc- 
tion may be marked most clearly by appealing to a physical 
standard. Where the death-rate rises, or where there are new 
diseases, or where measurements show that the population 
is deteriorating, there is positive evil, and we are bound to 
seek for the causes and try to remedy them ; but where no 
such evidence can be adduced a reform may be much needed, 
but there is not the same plain call for governmental inquiry 
and intervention. 

This distinction, in so far as it can be clearly drawn, 
illustrates the old adage that it is impossible to make men 
moral by act of Parliament. All that legislation can do is to 
give men better opportunities of making themselves moral. 
It may remove crying evils, but it cannot do positive good ; 
it can only provide the opportunity for good. If these new 
opportunities are to serve any useful purpose there must be 
some power of using them aright ; there must be higher 
ideals of how to spend time and money, and force of will to 
give them effect. It is too often assumed that all we have to 
consider with the view of improving mankind is the possi- 
bility of changing their circumstances ; but the real difficulty 
lies in changing them so that they shall take advantage of 
improved circumstances. The attractive force of personal 
kindness and personal sympathy must not be left out of 
account in this connexion, and private charity may call forth 
new vigour where relief at the public expense would only 



i6o Personal Responsibility [Ch. XI. 

degrade. It appears that public duty calls on us to prevent 
retrogression, but that it is private benevolence and personal 
sympathy that does most to elevate. 

4. It is comparatively easy to take a part and use influence 
in favour of some legislative measure when attention is once 
directed to a crying evil; the constitution of the country 
marks out the manner in which each man may exercise his 
duty as a good citizen. It is far harder to know how to act 
in regard to the other indirect responsibility which falls on 
all those who consume goods which are produced by sweat- 
ing. The ordinary purchaser is quite incapable of judging 
accurately of the quality of the goods he buys, and has not 
the means of informing himself as to the conditions of pro- 
duction. He may feel that the rage for cheapness induces 
traders to cut things as fine as may be ; but if he pays a 
high price he will himself be poorer, and how can he tell 
who will be better off? The single individual is so little 
informed, and so little able to procure information, that he 
can hardly be held to be bound to enquire for himself; 
though he may feel it a duty to discontinue dealing with any 
firm who are known to be guilty of oppressive conduct, and 
he may also be expected to inform himself carefully before 
he changes his custom from respectable traders who have 
served him well, on the mere grounds that somebody else 
will supply goods, called by the same names, for less money. 
But the range of personal influence exerted in such fashion 
is infinitesimal ; the mischief is to a great extent due to the 
system of letting work on contract, and though this may be 
a convenient method for guarding against fraud, it neither 
conduces to the supply of good work nor to favourable 
conditions for the producer. If large firms or public depart- 
ments could so far count on honest service as to be able to 
check the work done for them accurately, and to dispense 
with the convenient method of letting contracts, the pressure 
which has given rise to sweating would be very greatly 
reduced. 



Gain made at the Expense of Others i6i 

II. Sch-olastic Distinctions in regard to tlie Forms of Bargains. 

1. This, then, is one broad distinction between the problems 
about economic duty in mediaeval and in modern times. 
The schoolmen dealt chiefly with direct responsibility, while 
we have to deal with different degrees of responsibility ; and 
we find it specially hard to fulfil our indirect responsibilities. 
It is almost to restate the same thing in other terms when 
we say they could concentrate their attention on the bargains 
between one man and another, without following out the 
indirect bearings of the transactions very far. Society was 
less complex, and it was possible for men to isolate separate 
bargains and examine the forms under which they were 
contracted, and then to pronounce them to be fair or unfair. 
Their idea of fair gain apparently was that it accrued because 
of real work done; that a service was rendered, and the 
man was remunerated for what he did ; but that gain was 
unfair when it was secured without any corresponding 
service, when it was obtained not by doing something for 
someone, but at somebody's expense. 

(a) For example, the merchant who brought wine to this 
country might fairly be remunerated for his trouble in doing 
so, and when it was sold in the interior of the country there 
was an allowance for the cost of carriage. The Cambridge 
dons were constantly inclined to complain that they were 
charged more for their wine than the Oxford dons ; but the 
excellence of the water-way from the great mart at London 
doubtless favoured the University situated in the Thames 
Valley, even though Cambridge had easy communication 
with Lynn. The gain which the trader made in this fashion 
was a legitimate return for the trouble he took in supplying 
the English consumers in their own towns with a foreign 
commodity ; they recognised the point which modern econo- 
mists insist on, when they class those who are engaged in 
the carrying trades among productive labourers. But if the 
traders monopolised the whole supply of wine and sold it at 
a dearer rate, with a profit that covered a great deal more 
than remuneration for their trouble, then they were getting a 



1 62 Persojial Responsibility [Ch. XI. 

gain at the expense of the consumer, and this was held to be 
unfair; the whole of the legislation against forestallers and 
engrossers rested on this principle. They tried to buy up 
goods so that they might rule the market, and make a profit 
at the expense of consumers, without any adequate exertion 
or service which they themselves rendered. To gain by 
' making a corner,' or by creating an artificial scarcity, was 
to be guilty of extorting from another ; this extortion, whether 
practised by the wealthy against the poor, or by the labourers 
against their employers, was condemned alike in all cases. 
To take advantage of a man's need, or to aggravate a man's 
need for the sake of getting more gain, was conduct which 
they denounced in all its forms. 

(Jf) The moralists and legislators of the middle ages 
accordingly set themselves to prohibit transactions which 
gave the opportunity for extortion, where it might lurk with- 
out any one being able to check it and see for certain that 
he was being fairly treated. The operations of middlemen 
would often open larger markets and tend towards the benefit 
of producers and consumers alike, while the operations of 
engrossers, like corn-factors, tended to equalise prices over 
any period. They did not work altogether for evil, and as 
time went on, and the social benefits they conferred became 
more obvious, free scope was given for their operations. 
But dealings of this sort, though indirectly beneficial, did 
give opportunities for unscrupulous men to make a profit at 
the expense of the producer or the consumer, and hence for 
many generations transactions of this sort were forbidden. 

In regard to monetary affairs there was a special difficulty 
in forming any estimate as to the fair equivalent which a man 
with a fund of money might obtain for the services he 
rendered, in whatever way he used it. He was hedged in on 
every side. If he attempted to carry on business as an 
exchanger, for profit, he was apt to infringe the privileges of 
the crown and the mint. If he sought to lend money to 
neighbours who needed it, and asked for interest on the 
money, he found he was under the suspicion of trading on 
their necessities. In all these various cases there was special 



Reimmeration for Risk 163 

opportunity for taking advantage of men's ignorance or of 
their need; there was the greatest danger that extortion 
would be practised, and therefore mediaeval legislation, both 
ecclesiastical and civil, discouraged or prohibited any one 
from making hie living in such ways. But the restrictions in 
regard to commerce were far less frequent than those for 
other employments of money. On the whole it was possible 
for the moneyed man to enter into partnership with others and 
share the risks and the profits of a venture ; even here such 
restrictions might be forced on him, in the interest of the 
consumer, as to destroy all possibility of gain ; but this field 
of enterprise was open to all who would take the risks. It 
was only when a man tried to bargain himself out of risks, 
and at the same time endeavoured to secure a gain for 
certain, that they felt he was driving a one-sided and unfair 
bargain. He was trying to secure himself against possible 
loss, which was fair enough ; but he was also trying to secure 
a gain for himself, however the venture turned out, and this 
gave rise to the danger of extortion. 

The lender, according to mediaeval notions, was perfectly 
justified in trying to secure himself against loss of the 
principal by taking a pledge for the return of his money. 
But if he chose to secure himself against loss in the course of 
trade, he had no fair claim to remuneration as well. Ap- 
parently the schoolmen considered that the essence of the 
service which the moneyed man rendered lay in his under- 
taking the risks of business, and that if he bargained himself 
out of the risks he had no claim to any gain from business. 
He might make his choice, and have his principal secured to 
him and get no gain, or he might risk his principal and reap 
a contingent gain ; but he appeared to be dealing very hardly 
if he insisted on both demands, — on securing himself against 
possible loss, and bargaining for a definite and certain gain. 
The man who lent his money on security without asking for 
interest was doing a charitable thing, — it was a thoroughly 
Christian act. The man who went into partnership in 
business and risked his money in the hope of a contingent 
gain, deserved the gain that accrued; but the man who 



164 Personal Responsibility [Ch. XI. 

secured himself and demanded gain as well was making a 
bargain by which he might gain at another's expense, and 
he was falling into sin. 

{c) They would not have denied that the lender did the 
man who borrowed a real service ; they recognised that it 
was a real charity to assist him in this way. The man who 
throws a rope to a drowning man does him a real service, 
but we should condemn the conduct of any one who tried to 
bargain with the drowning man before throwing him the rope, 
and charged, not an equivalent for his own trouble in render- 
ing the service, but as much as the man could be got to pay 
rather than lose his life. The schoolmen saw no means of 
assessing in terms of money an equivalent for the service the 
moneyed man renders, when he bargains himself out of all 
risks ; they could frame no standard of what was fair, and 
they knew that, as a matter of fact, moneyed men were only 
too apt to take advantage of the needs of others so as to 
make large gains for themselves. As has been pointed out 
above, there was little scope for the employment of money 
in ordinary business in mediaeval times. Those who bor- 
rowed did not do so in order to trade, for they could hardly 
have made much profit for themselves with money on which 
they paid 40 per cent. They borrowed because there was 
some special pressure, like unexpected demand for royal or 
papal taxation, or because they wished to undertake some 
great work at once, or fit out a military expedition. They 
usually borrowed, because they had occasion for ready money 
in order to meet some expense, and therefore they were more 
or less in the power of the lender ; the pressure which forced 
them to borrow at all, would also force them to agree to ex- 
tortionate terms. In this way a man who was really wealthy 
might, through a temporary need for ready money, get drawn 
into a ruinous agreement by which his whole property should 
be gradually drained. The temporary need might be con- 
verted into a permanent and intolerable burden if the lender 
made an unscrupulous use of his opportunity for extortion. 

The vciQxtforvi of the agreement appeared to the school- 
men to indicate sufficiently whether there was room for ex- 



Extortion and the Rate of Return 165 

tortion or not. They did not feel it necessary to take account 
of the rate of gain for which the lender bargained ; for they 
held that if he was secured against loss he had all the con- 
sideration he could fairly demand, and that any extra gain 
only represented the need of the borrower, not an equivalent 
of the service rendered by the lender. A man had a right 
to require that his own should be restored to him and to 
take security; he had a right to require that it should be 
returned at a given date ; but in the circumstances of the 
day, and with the very limited field for investment which was 
then available, it seemed impossible to assign any rational 
grounds for demanding more than this ; and therefore it 
seemed impossible that a lender could justify such a de- 
mand. That the borrower was willing to pay was perfectly 
true ; but that did not make it right for the lender to take 
advantage of his desire to escape from a present evil at the 
expense of involving himself with future liabilities. Any bar- 
gain which, while securing the principal, also demanded in- 
terest, appeared from its very form to be extortionate, since 
it seemed to show that the moneyed man was taking advan- 
tage of the borrower's need. 

2. In the sixteenth century, however, it began to be gene- 
rally felt among business men, as had not been the case in 
preceding centuries, that the old distinction which rested on 
the form of the bargain was unsatisfactory. There were 
many cases in which loans, though usurious in form, were not 
extortionate as a matter of fact. If a merchant made on an 
average 10 per cent, by the use of capital, he could easily 
afford to borrow at 6 per cent. ; the man who bargained to 
receive 6 per cent, from a merchant who gained more largely 
still by the use he made of the capital borrowed, could not be 
regarded as guilty of extortion. During the sixteenth cen- 
tury there was an extraordinary stimulus given to English 
industry and commerce, and many men were eager to borrow, 
not for the sake of relieving themselves from difficulties, but 
to enlarge their trade, or to commence trading. This was 
a state of society which the schoolmen had not contemplated ; 
and the modern conscience felt that there was no harm in 



1 66 Personal Responsibility [Ch. xi. 

many bargains made in forms which they had condemned. 
The Tudors and Stuarts attempted to draw a new kind of 
distinction between extortionate and fair monetary transac- 
tions by Hmiting the rate of interest. They passed permis- 
sive bills which allowed men to bargain for definite gain on 
secured loans, so long as the gain was limited to a compara- 
tively low rate ; but this sort of regulation was indefensible 
in principle and could not be enforced in practice, — though 
it survived till Jeremy Bentham dealt it a death-blow. 

The logic of facts has thus condemned these attempts to 
distinguish between what is extortionate and what is fair in 
regard to lending. The scholastic distinction, according to 
the form of the bargains, prohibited much that was obviously 
harmless : if it had been maintained it would have seriously 
interfered with the expansion of our commerce and the de- 
velopment of our West Indian colonies. The Tudor rule, as 
gradually modified, was not susceptible of rational justifica- 
tion, and was evaded in practice ; it was not merely useless 
but often injurious, and served to aggravate the evil it was 
designed to prevent. But even if it be impossible to draw 
a distinction, which can be embodied in statute law, and to 
draft a rule which can be enforced under penalties, it may 
be possible to discuss the matter so as to give counsel for 
personal conduct. If it were possible to frame some maxims 
for personal guidance in the new circumstances of the day 
we should at least have advanced a step ; a very little step, 
but still a real one. There are many men who feel that the 
strong condemnation of usury, not only in Scripture, but 
among ancient moralists of all sorts, must mean something. 
When the secret practices of money-lenders are exposed they 
realise that the evil is not entirely a thing of the past, and 
they are anxious to see that they themselves are free from 
blame in this matter. 

Nor is it possible to get satisfactory guidance from public 
opinion. Public opinion is not inclined to condemn any 
transaction that is concluded openly and in the light of day ; 
but posterity may see in this, as we do in the stories of Roman 
spectacles, a proof that society was corrupt, not that the 



Public opinion and Personal Duty 167 

thing itself was right. Public opinion is apt to tend to a 
lower level of morality, to accept as legitimate all that the 
law refuses to condemn as criminal. Public opinion can 
only be raised by those who set a higher standard for them- 
selves personally ; they may in time impress the world with 
the fact that theirs is a good standard, and the law may 
secure the advance by condemning conduct that defies this 
higher standard. But it is by personal effort to attain a 
higher standard of virtue than that which is current, and 
only so, that the tone of society itself can be raised. 

The pages that follow contain some suggestions as to 
maxims for personal guidance ; these can, of course, only 
be put forward tentatively, and as suggestions. The distinc- 
tions which the schoolmen drew are no longer applicable, 
but the evil which they tried to avoid is not extinct. We 
can no longer be content, as they were, with looking merely 
at the form of the bargain ; they condemned much which our 
consciences feel to be allowable ; it cannot be wicked to take 
a money reward for doing what it is virtuous to do gratuit- 
ously ; so long as we are sure that the money reward is rea- 
sonable and not excessive. How shall we guard ourselves 
against the possibility of being extortionate? They would 
have eschewed all bargains that might become extortionate ; 
can we draw the line in any other way? In their day, extor- 
tion was commonly practised when the form of the bargain 
gave the opportunity ; in our times it is perhaps exceptional. 
Can we find maxims which will enable us to avoid these ex- 
ceptional cases of the extortion which seemed to them to be 
inevitably connected with lending money on security, and for 
a definite rate of return? 

There are three different questions of duty which demand 
consideration ; we may enquire first of all, about right and 
wrong as it concerns the manner in which capital is employed ; 
secondly, right and wrong as to the rate of return received 
from capital ; and thirdly, right and wrong as to the expendi- 
ture of income and enjoyment of wealth, 



CHAPTER XII. 
Duty in regard to employing Capital. 



There are some kinds of business in which no one need 
have any scruple in engaging ; there is no sort of productive 
employment which adapts the gifts of nature to the use of 
man that is a wrong way to use one's time and money. It 
is a duty to do such business heartily and earnestly, and to 
give one's mind to carrying it on as well as possible. The 
ethical questions in regard to such an employment must all 
be about the manner in which it is carried on ; whether in 
developing the business, or in arranging its details, there are 
any minor dishonesties or extortions. But there may be other 
modes of using money which are wrong in themselves, not 
because of faults in the way of conducting them, but because 
the business itself is immoral. Thus it is illegal to keep 
a gambling hell ; it may be profitable to do so, but it is 
pandering to a violent passion, and the employment is 
immoral, even if it is conducted with the most scrupulous 
regard to honesty as between the managers and those who 
frequent it. In the same way it is immoral to make money 
by dealing in slaves ; this is apparently a very risky busi- 
ness, and the profits on successful transactions are high; 
but the misery it causes, especially in the kidnapping of 
slaves, is overwhelming, and it is wrong to do it at all, and 
of course wrong to make money by doing it. There are 
some employments, then, that are plainly immoral, while 
there are others that are plainly allowable. In regard to 
the latter we have only to consider whether we are doing 



What the Law does not Condermt 169 

a thing that is not wrong in the right way ; but in presence 
of the existence of gambling hells, and of slave marts, we are 
forced to ask how we are to discriminate the allowable uses 
of capital from those that are to be condemned as wrong. 

I. By wliat standard shall we discriminate ? 

1. There is indeed some difficulty in seeing by what 
standard we are to judge. There is of course a standard 
given by the law of the land, which treats some employments 
as criminal, or regards others as outside the pale of the law, 
so that there can be no recovery for debts. Public opinion 
may have a slightly higher standard ; it refuses to pay 
much respect to a man who only just manages to evade the 
law, and is guilty of sharp practice ; but, after all, the public 
memory is short, and if the sharp practice is successful, 
much will be condoned to the man who has risen to a 
position of affluence, and a little generosity will silence 
unfriendly criticism. But the standard on which the law 
acts is necessarily a low one. It can only condemn what is 
plainly wrong and what is proved to be wrong ; it cannot 
take account of many forms of wrong-doing, because it is 
impossible to obtain evidence without opening the way for 
grosser mischiefs. It cannot blame a man for the indirect 
and distant effects of action which was in itself legitimate. 
It cannot adequately weigh motives and discriminate what 
is well-intentioned from what is malicious. And so long as 
this is the case we may feel that the standard it sets serves 
to stigmatise what is wrong, but does not hold up an ideal 
of what is right. We are bound to see that we do not fall 
below the standard set by the law of the land ; but we are 
not necessarily right if we keep up to it. Those who from 
any motive allow themselves to infringe it are greatly to blame ; 
they are, at all events, involved in the appearance of evil, and 
are setting a bad example ; but it at best only marks out 
what is allowable from what is wrong, it does not lay down 
clearly what is right for me in my circumstances. 

2. Hence we may see from another point of view the 



I/O Duty in regard to einploying Capital [Ch. xil. 

importance of cherishing an ideal for human society ; it 
keeps before us the goal towards which we are to move, 
the aim which we are to keep in view. It is an inspiring 
thing to have a high ideal, it is a duty to cherish it, and 
never to be satisfied with meaner conceptions of life ; it is 
right to endeavour to realise it. Here we may see the 
influence which religion can exercise on economic action 
and social life. It sets before us a nobler ideal, it gives us 
strength to try and realise it, and to maintain it through 
disappointment and discouragement. Such an ideal is a 
personal power, inspiring personal effort; but as it takes 
hold of one man after another, as it is less and less imper- 
fectly realised by one and another, it raises the tone of 
society. In so far as action is in accord with the ideal it 
may be said to be virtuous ; and we ought to aim, not merely 
at escaping the clutches of the law by avoiding what is 
wrong, but at leading a virtuous life. 

We may thus find a great difference of standard in regard 
to almost every action of ordinary life. The law stigmatises 
what is wrong, and leaves us to gather what is allowable ; 
but the good man will not be satisfied with this standard ; 
he has a higher ideal, and his conscience will not allow 
him to ignore or forget it. He will try to do, not only what 
is allowable because it is not wrong, but what is consonant 
with his ideal and therefore right. His conscience takes 
a stricter view than the law of the land, because it has the 
means of taking account of motive and intention as well 
as of word and deed. And there may therefore be frequent 
cases where his conscience condemns, as not right for 
him, what the law of the land and public opinion regard 
as allowable conduct. And in such a case the man who 
goes against his conscience and accepts the lower standard 
is certainly wrong, even though society may find no fault 
with him. 

At the same time the decision of his conscience is a 
personal one ; the action is wrong for him, with his ideal, 
and his knowledge of the circumstances of the case. He 
is called upon to guide his own conduct by his own sense 



Social Ideals 



171 



of duty, but he is not justified in applying it directly to 
anyone else. In judging of others, we have no reason to 
apply a different standard from that which is current, and 
which is embodied in the law of the land, as set by public 
opinion ; we are only justified in condemning them when they 
fall below this standard and are guilty of doing something it 
stigmatises as wrong. Herein lies the importance of the 
principle which is so widely accepted at present, that busi- 
ness of every kind should be above-board, and should bear 
the light of day. So far as transactions are public, they 
will not fall below the commonly recognised standard of 
what is allowable ; and this is a good thing. But if no one 
tries to rise above the standard, and thus helps to raise it, 
there is a real danger that it will be gradually lowered. We 
cannot condemn what is done publicly and above-board by 
others, but we would do well to have a stricter conception 
of duty to apply to ourselves. 

But how, it may be asked, are we to bring our ideal to 
bear on actual life? We may cherish an ideal of human 
society where there shall be no poverty and no oppression, 
where all shall be comfortable and none shall be surfeited 
with luxuries ; but such an ideal is social. It can only be 
realised in and by the community, and one human being 
cannot make a little millenium all by himself in entire 
disregard of his surroundings? What is the good of an 
ideal which seems to be a mere dream ? If I cannot realise 
it by myself it cannot serve as a guide to my conduct. 

3. Here again we come on another instance of the dis- 
tinction which has been insisted on so often. We may 
frame our ideal for man in terms of his surroundings, or we 
may frame it in terms that concern him. {a) To picture 
the possible surroundings which men might have is simply 
to let the imagination run riot. It is idle if we call in the 
help of inventions and discoveries which have not yet been 
made ; it is merely tantalising if we content ourselves with 
picturing an immense improvement in human surroundings 
which might be made with our present powers. Every 
peasant with a fowl in the pot was the French King's ideal, 



172 DiUy in regard to employing Capital [Ch. xii. 

and it was one which an absolute monarch could have 
realised for a time, perhaps for a day, but he could not 
guarantee its continuance. This is the defect of all ideals 
which are framed in terms of human surroundings ; we need 
to secure the diligence and self-restraint of the men, in 
order that these ideal surroundings, when once achieved, 
may be maintained. And hence it is simplest and wisest to 
frame our ideals in terms of personal motive and character ; 
for we may be sure that if the ideal of internal and personal 
life were once generally realised, the externals would soon 
be satisfactory too. ' Life develops from within ; ' and a 
world that was peopled by unselfish and diligent men would 
leave but little ground for complaint so far as the material 
comforts of the population were concerned. 

ib) It may be true that ideal circumstances would give the 
best opportunity for training ideal men, but so long as oppor- 
tunities are neglected and misused the ideal circumstances 
would not ensure ideal men. It is best worth while to fix our 
attention on personal character, and to frame our ideal in 
terms of character, since in so far as that is attained, and the 
springs of human action are aifected, the results of human 
action in the shaping of human environment will follow directly. 

Such a personal ideal, too, as it takes account of motives 
and intentions, may afford immediate assistance in ordinary 
life. We cannot make everybody comfortable, but we can 
endeavour to see that our motives are unselfish, and we can 
set ourselves to be diligent in our business. In this way 
each single act, in this imperfect world, may be tested by 
our ideal. We may be able to see that conduct that is allow- 
able according to the standard of public opinion is wrong 
for us, because it is inconsistent with our ideal, inasmuch as 
it is a selfish endeavour to gain at the expense of others, or a 
piece of lazy self-indulgence. An ideal expressed in terms of 
man's surroundings is a mere dream, for there is no security 
that it could be maintained even if it were introduced, and 
it gives us no help in regard to the means that must be 
taken for introducing it ; but an ideal expressed in terms of 
personal characteristics is the greatest assistance to progress 



External and Personal Ideals 173 

it gives us guidance at every moment of doubt, and thus 
prepares the way step by step for a more complete realisation. 

4. It is worth while to observe, too, that those who cherish an 
ideal of comfortable circumstances, of easy competence and 
comfort for all, are inclined to look for its realisation, not to 
their own action, but to the doings of others. ' My modest 
five hundred a year will do little to diffuse general comfort, 
but my neighbour's five hundred a day might do much.' 
Hence the natural attitude to take is that of criticising the 
conduct of others instead of looking carefully to our own 
doings. It is much easier to inveigh against the greed of 
millionaires than it is to use ^500 a year in the right way. 
But if our ideal is framed in terms of personal motive we 
shall begin by seeing that our own motives are right, and we 
shall be disinchned to waste our time in criticising the conduct 
of those who are in other circumstances than ours, and of 
whose motives and shortcomings we cannot judge. 

It is not wicked to be rich, but it is wicked either for a rich 
man or a poor one to be greedy and selfish. Our morality is 
least likely to be confused if the ideal by which we correct 
the vague permissions of public opinion turns our attention 
to our own personal motives, which we know, rather than to 
those of others, about which we can only speculate. 

II. The mis-employment of Capital. 

Such are the available means for judging of right and 
wrong in economic affairs ; we may now turn to view ques- 
tions connected with the employment of capital in the light 
they afford. In doing so we shall have to distinguish the two 
modes of employing capital which have been discussed above, 
for there are at any rate different degrees of responsibility ac- 
cording (i) as we lend capital to other people who misuse it, 
or (2) misuse it ourselves by engaging in a kind of business 
which our consciences do not approve. 

1. {a) The preliminary objection that such loans are in 
themselves wrong may perhaps be waived. This was un- 
doubtedly the opinion of the fathers and schoolmen ; but it 
is also clear that circumstances alter cases, and it would be 



174 Duty in regard to employ mg Capital [Ch. XII. 

difficult to contend that such loans are always wrong at the 
present time. A modern official utterance of the Church of 
Rome did not make this bold and uncompromising assertion, 
aild it does not seem possible to cut the Gordian knot and 
solve all the perplexities in a rough and ready fashion. The 
danger of extortion in connexion with loans, which was the 
practical reason for the scholastic prohibition, can be con- 
veniently dealt with when we are considering right and 
wrong in regard to gain from capital, that is to say, the terms 
on which loans are made. 

{b) We may then look at the case of loans to a foreign 
Government. According to the ordinary standard which is 
set by public opinion, a man lends his money in the open 
market, and gets his bond. The whole transaction is above- 
board, and is perfectly straightforward and simple. 

But the scrupulous man may not be so easily satisfied ; he 
may feel that he is indirectly responsible for what the Govern- 
ment do with his money, because he has supplied them with 
the means of carrying out their purpose, whatever it is. It is 
conceivable that the city of Geneva should desire to attract 
wealthy folks from all nations by establishing gaming-saloons, 
and that it would endeavour to float a loan so as to carry out 
this scheme in the most magnificent fashion. Those who 
knew the object to which the loan was to be applied, and 
who lent their capital to enable the city to start the enterprise, 
could hardy repudiate all responsibility in the matter. If it is 
wrong to get money by keeping a gaming-saloon,it is also wrong 
to lend money to some one else so as to enable him to do so. 

But such a case is a mere fancy illustration ; in most cases 
when a Government borrows, it borrows for some specific 
object which is quite unexceptionable, like the laying of a 
railway or other public works ; or it borrows for what may be 
called general purposes, in order to continue to rule. In the 
latter case the ethical question is not simply, Shall I enable 
this Government to do some particular thing which my con- 
science condemns? but. Shall I enable this Government to 
exist? and. Can I trust it not to do more harm than good 
with the resources with which I supply it? Even if after- 



Foreign BondJwlders 175 

events show that the money was misused, and the schemes 
of the statesmen utterly miscarry, it may not be easy to 
blame him, still less to blame those who enabled him to 
attempt it. We may take the case that has roused most 
criticism against bondholders — the case of Egypt. Granting 
that the Government of Egypt has been in many ways 
extravagant and bad, and that the pressure of debt was so 
heavy as to be almost intolerable, and recognising all the 
complications which the attempt to protect the bondholders' 
interests has brought about, we may still remember that 
Mr. Stanley, looking back over all the ghastly failure, yet 
speaks with enthusiasm of the great attempt to found a widely 
extended Egyptian empire. It is difficult to say that those 
who furnished the resources for that enterprise were to blame 
for enabling Ismail to make the attempt. 

After all, a bad Government is better than none ; it is very 
unlikely that any Government which has credit to borrow is 
so bad, so certain to use its resources cruelly and oppres- 
sively, that it is wrong to supply it with resources. The 
precise manner in which the loan is used, and the precise 
results which follow from such expenditure, cannot be 
definitely foreseen. There is the element of uncertainty 
about this which renders all questions of practical politics 
so fascinating to some minds, and so uninteresting to others. 
We never can tell exactly how the matter will turn out, 
and there is an element of speculation about the whole 
affair. While a man would not be excusable who lent 
money that he knew would be misused, there are few who 
would hesitate to lend to a Government for fear that that 
body should misuse it, or who, if the money was squandered 
or worse, would feel that they ought to have foreseen it and 
were personally to blame. 

{c) The case of lending to a private person is not dis- 
similar. If it is clear that if the money is going to be used 
for a particular purpose of which the lender disapproves, he 
is not justified in making the loan. And this may apply to 
other cases than money used for immoral purposes. If 
a man burdens his estate not in order to enable him to make 



1/6 Duty in regard to employing Capital [Ch. xil. 

permanent improvements, but in order to maintain an ex- 
travagant expenditure, he is at least acting foolishly, and it 
is wrong to help him to make a fool of himself. The lender 
can probably make such enquiries without much trouble 
as will enable him to satisfy himself on this point. The fact 
that the borrower wants the money because he likes living- 
extra vagantly, and that he is willing to pay for it, or that 
he will get it easily enough from someone if I refuse, does 
not acquit me of my responsibility for supplying the loan. 
I am to blame if I knowingly abet him in continuing in an 
extravagant career, and in nine cases out of ten the enquiries 
which are made as to the value of the security offered will 
bring out the character of the borrower. 

2. There are many cases, however, where a man manages 
his capital himself, or chooses the direction in which he will 
invest it. He does not lend it, but he enters into business 
on his own account, or he becomes a partner by buying 
shares ; if that business is immoral or mischievous he is to 
blame. That someone else might engage in it if he did not 
does not alter the case ; the question is as to my personal 
duty with my information and as I judge of the influence of 
a certain enterprise. I am not called to condemn another for 
doing what I feel to be wrong for me — so long as society per- 
mits it — but still less am I at liberty to correct my conscientious 
conviction by appealing to the practice of these people. 

{a) In regard to every sort of industrial enterprise which 
is allowed by English public opinion, it may be said that it 
is not wrong in itself, but that blame may arise because 
of the habitual misuse of the articles produced, and which 
might be used innocently. Is the producer to blame for 
wrong done by the man who purchases the article ? Is 
the wrong in making it, or in misusing it when it is made ? 
The distinction may be illustrated by an extreme case, such 
as the alleged manufacture in Birmingham of idols for export 
to India. The 'idol is nothing; ' the manufacture of an ugly 
image of an impossible monster is not wrong ; to manufacture 
similar articles for nicknacks in drawing-rooms would be 
catering for a harmless taste for grotesques; the mischief 



Brewing good Beer 177 

lies in the wrong use of a material object, — in the idolatry. 
At the same time, there can be so little doubt that the idols 
will be used in connexion with heathen rites, that those who 
manufacture them must be aware that they are aiding and 
abetting in idolatrous worship. Where there is practically 
speaking no ' use ' for an article except one that is wicked, 
the manufacturer of that article is more blameworthy than 
the man who ignorantly worships it. 

{b) We might take an opposite case ; there may be a pub- 
lisher who devotes large sums to the translation and pubUca- 
tion of Christian writings, in the belief that a real service is 
done to religion by disseminating such literature, and he 
may find it a profitable enterprise. But in the descriptions 
in which the fathers occasionally indulged of pagan society 
and denunciations of pagan vices there is a great deal of 
plain speaking on gross subjects. He might find that por- 
tions of the works he had pubhshed were susceptible of great 
abuse, and had, as a matter of fact, pandered to the depraved 
tastes of vicious persons. How far is he to be blamed for 
this misuse of an article which he has produced with the best 
intentions? In such a case it may be possible to guard 
against the misuse by excisions ; but the illustration may 
at all events serve to bring out the point of the difficulty. 

3. There is no material object which is bad in itself; it 
only becomes an evil if it is badly used. The root of the 
evil lies not in making the thing, but in the wrong use of the 
thing ; but for all that, the scrupulous man cannot disclaim 
responsibility for manufacturing articles which are persistently 
and habitually misused, because he cannot but be aware that 
he is pandering to probable misuse. 

{a) There is one business which is carried on in this country 
on a very large scale about which this question has come to 
be of practical importance — the brewing trade. It is of course 
obvious that good beer is a good thing ; and there is no 
question here of bad beer or of adulteration, or of dishonest 
trade, but only of the manufacture of a good article which is 
in itself harmless. On the other hand, it is clear that in this 
country there are many persons who misuse beer, and that a 



178 Duty in regard to employing Capital [Ch. Xil. 

considerable portion of brewers' profits must be due to sale 
which takes place not in connexion with the temperate use, 
but in connexion with the intemperate misuse of beer. This 
is so generally recognised that in one constituency recently 
the voters insisted that their member should cease to hold 
brewery shares ; they did not wish to be represented by a 
man who derived profit from a business which they regarded 
as not above suspicion ; and it is also rumoured that this 
feehng has led to differences of opinion among the partners, 
and alterations in the constitution of at least one great firm 
of brewers. 

(<5) Inasmuch as beer has a legitimate use, brewing is a 
perfectly legitimate business which is in itself thoroughly 
unexceptionable and honourable, like any other industrial 
undertaking ; that need not be a matter of argument, though 
there are Manichaeans who would contest it. At the same 
time the personal responsibility of the brewer, as a man, does 
not necessarily end when the article is produced ; he cannot 
altogether disregard the manner in which the article is con- 
sumed, for it is by the consumption of his beer that his capital 
is replaced, and that his profit accrues. In so far as he is 
careless whether his beer is misused or not, and in so far as 
he pushes his business and tries to enlarge the sale without 
thought of the possibility of abuse, he is shirking a responsi- 
biUty. In so far as he is aware that his beer is commonly 
misused, and carries on a business so that he deliberately 
derives gain from the misuse of beer, he is certainly to blame. 
But it is very difficult to carry on this particular kind of 
business in the present condition of this country without 
falling into mischief of some kind. The attempt to push a 
sale by taking up the retail trade is apt to tend to abuse, for 
it is very difficult to exercise an effective supervision over 
houses that are thus managed. It may therefore be said of 
brewing that it is a kind of business which is perfectly legiti- 
mate but which it is particularly difficult to conduct without 
incurring the guilt of gaining through the vices of others. 

Where a man brews in connexion with his own hotel, and 
exercises a personal supervision over the consumption as well 



Possibility of Effective Control 179 

as the sale, he is in the best possible position for preventing 
abuses ; the risk of evil is much greater in the case of 
large firms, which not only brew for wholesale customers, 
but own a large number of public-houses for the sale of their 
beer ; in such cases the possibility of effective management, 
and therefore of avoiding abuses, is reduced. It is still 
further reduced in the case of breweries which are not man- 
aged by private firms, but by companies ; the power of each 
partner in controlling the business is practically nil, while the 
directors are more tempted than the managers of other firms 
to push the business with mere regard to possible profit. In 
the case of brewing the effort of the virtuous man will be to 
guard against the dangers of misuse, and to avoid as far as 
may be the deliberate effort to gain because of misuse ; and 
consequently the matter turns very much on the carefulness 
of the management, and its effectiveness. When the control 
is personal and effective, the risk of abuse is at a minimum ; 
where responsibility is divided there is great difficulty in 
exercising a complete control. Thus the question wears a 
very different aspect in the case of the man who brews for 
consumption on his own premises, and in that of the man 
who holds brewery shares, and draws a gain without any 
consideration for, or any effective power of, preventing pos- 
sible misuse. 

It is of course true that the prevention of abuse in this 
matter is an affair of social importance, and that no single 
individual can do much to abate it. He may do his best to 
guard against mischief in connexion with his own business, 
but that will do little to alter the habits of society. So far 
as abuse can be limited by municipal regulation or by legis- 
lation, it is incumbent on the good citizen to endeavour to 
frame measures that will abate the evils of intemperance. 
It is of course the part of the brewer, as of every other 
citizen, to promote any measure that would really have this 
result ; but it may be that in aiming at this result some 
legislative enactment would impose serious restrictions on 
the brewer's business, and his interest as a trader would con- 
flict with the duty of promoting a measure of general benefit 



i8o Duty 171 regard to efnploying Capital [Ch. Xll. 

to the community. In such cases it would call for much 
public spirit to join in the attempt to limit the abuse by 
legislative means ; and there might be at least a temptation 
to postpone public duty to private advantage, and to refuse 
to take active part in putting down abuses which prove pro- 
fitable to himself personally. This is a position which the 
scrupulous man will wish to avoid ; he would be anxious not 
to slip into a position where his personal and pecuniary 
interest might tempt him to be lukewarm, or even to oppose 
a well-considered measure for checking the evil of intem- 
perance. 

The business of brewing may be taken as typical of othef 
cases, and the discussion may be summed up in a general 
form. Any business which is in itself useful and honourable 
offers a legitimate employment for capital; but when the 
products of the business are frequently misused, and when 
the profits of the business arise, in part at least, from the 
misuse of the article manufactured, it is incumbent on the 
manufacturer not to ignore the misuse and deny his responsi- 
bility, but to endeavour to take precautions against misuse. 
It is very difficult to take precautions if a business is being 
developed rapidly, and very difficult to carry them out where 
the organisation is large and complicated. There may also 
be a conflict between private interest and public duty as a 
citizen, and the scrupulous man will wish to avoid placing 
himself in a position where it is so difficult to act with recti- 
tude. Rather than be liable to slip into the position of 
abetting intemperance, and gaining through the vices of others, 
he will prefer to eschew that calling altogether. 

4. One solution of the difficulty for which there is a good 
deal to be said is that a trade of this kind should be a Govern- 
ment monopoly. This may appear paradoxical, as it has 
just been remarked that effective control will give the best 
safeguard against abuses ; and it is notorious, as has been 
pointed out above, that Government administration is apt to 
be lax. This is true ; but it is also true that the Government 
need not push the business for the sake of profit, or in order 
to compete with other traders, and that by possessing the 



State-7nanageineiit of the Liquor Trade i8i 

complete control it may be able to limit the supply. This was 
attempted in England under James I, and it is the practical 
effect of the high license policy which is in vogue in many 
of the American States. The State could thus carry on the 
legitimate business at a large profit, and at the same time 
devise any possible measures for preventing abuse. 

There is, of course, the real difficulty that any arbitrary 
restrictive measure is likely to oifer great temptations to 
illicit manufacture and secret drinking, and that such practices 
are exceedingly demoralising ; and this is true. Some people 
urge that it is wrong for the Government to reap a gain from 
the self-indulgence of the subjects, but this contention seems 
to involve some misapprehension of the particular case. The 
point of the whole proposal rests on the belief that the 
Government can so manipulate their monopoly as to reduce 
the evil to a minimum ; that it can get its profits from the 
production of a much used national beverage, but that the 
possession of a monopoly would put the Government in the 
best possible position for checking incidental abuses. While 
such a solution might seem to be the best possible, there is 
no prospect whatever of any attempt to carry it out in this 
country ; and we are therefore left in this position, that while 
it is a useful and honourable thing to produce good beer, 
there is yet so much danger of being insensibly led to become 
a conscious accessory to intemperance and evil, that the 
scrupulous man will prefer to avoid such an investment 
unless he is able to exercise a complete control, and believes 
that he is able to guard effectively against the dangers of 
misuse. 

III. Helinquishing Business in consequence of 
Conscientious Scruples. 

1. But there may be a further difficulty. If a man comes 
to have scruples about a business in which he is engaged, 
how is he to get rid of it? There are two possible courses; 
he may {a) shut the whole thing down and sell the plant for 
its worth as material, — a transaction which must involve 
serious loss, and may mean absolute ruin. Or (<5) he may 
sell the business as a oroino; concern, or his share in the 



1 82 Duty in regard to einploying Capital [Ch. XII. 

business to another man who feels no scruple about it, 
though by so doing he involves another man in the very 
career which he has himself discarded on conscientious 
grounds. To incur ruin would be the more heroic course; it 
might conceivably be the right course if the business were in 
itself immoral, like keeping a gambling saloon ; such a 
sacrifice would certainly place a man in an effective position 
for leading a crusade against abuses connected with a trade 
in itself useful. 

2. But though it might be a heroic proceeding it does not 
appear to be incumbent on the man who has begun to feel 
conscientious scruples about gaining from a business which 
is generally recognised as allowable and honourable. It is 
wrong for him, with his conviction as to its bearing, and his 
felt difficulty to prevent abuses ; but it may not be wrong for 
another. He has a perfect right to realise his capital and 
sell a business which he does not desire to manage and does 
not wish to push. His withdrawing from the trade would in 
any case make room for others to enter, or to enlarge their 
business. If he shuts down, the neighbouring brewers will 
be the gainers, and he will lose heavily, but there will be no 
diminution of the supply to the public. If he sells, he carries 
his money out of the trade, and a new man enters on the 
field. The practical bearing of his deciding to take the 
heroic course is that in one case he loses and his competitors 
gain; in the other case he severs his connexion with the 
trade, and competition continues as before. In such a case 
it seems that a man who scrupled to hold a property need 
have no scruple about selling it ; his personal feeHng makes 
it wrong for him to continue to profit by it ; but his personal 
feeling gives him no right to condemn all those who are 
carrying on a business which society regards as allowable and 
useful. 

3. There is another matter about which difficulty is felt. 
Supposing a man comes to have scruples about the way in 
which his money has been acquired, how far is he justified 
in continuing to enjoy it? For example, a fortune may have 
been made originally by dealing in slaves ; that is an im- 



Possibility of Restitution 183 

moral business ; and we can easily suppose a case where the 
grandson of a Liverpoo or Bristol merchant enjoys an 
estate or a fortune which was notoriously acquired by a 
mode of business which is now illegal. 

(a) So far as the man who has inherited such a fortune is 
concerned, it may be said that he has himself come honestly 
by it ; that it has descended to him, and that he has had no 
part in the doubtful transactions by which it was acquired at 
first. Since the property has come into his hands, his main 
duty would appear to be the conscientious discharge of his 
obligations as a proprietor ; he ought to be careful, as all 
other proprietors should, about the manner in which he uses 
his property. If there is a possibility of restitution and 
reparation to any who have been wronged it is an undoubted 
duty to make it ; but when reparation is no longer possible, 
there does not seem to be any obligation for me to pay Paul 
because Peter has been robbed by my grandfather. But the 
whole matter wears a different aspect with regard to the 
personal enjoyment of gains which a man has himself 
acquired by unscrupulous conduct. There is a far clearer 
call and probably a far greater opportunity for restitution 
and for attempts at reparation, and no man can have a 
moral right to enjoy what he was not justified in acquiring. 

(b) Even so, however, there is a very great distinction 
between gain which was acquired by dishonesty and chi- 
canery, that was known to be dishonourable at the time, 
and gain which accrued through a business which was 
pursued in all good faith and with a clear conscience, but 
which has come to be differently regarded through the 
gradual elevation of public sentiment, as slave-dealing has. 
In the latter case the attempt at reparation would be a 
voluntary act, which the scrupulous man might feel it right 
to do ; in the former there would be an equitable claim 
which might possibly be enforced in law even after the lapse 
of many years. But the most important questions in regard 
to money are not as to the means by wdiich it has been 
originally acquired, but as to the manner in which it should 
be used ; and to this we must return later. 



CHAPTER XIII. 

Duty in regard to the Return on Capital. 

It is usual to distinguish the return which the capitaHst 
receives into three parts: Interest, Insurance against Risk, 
and Wages of Management. This analysis is very unsatis- 
factory in each of its parts, but nothing better can be expected 
so long as only one form of capital is taken into account, 
and the subject is treated as if all capital were employed in 
industry, and administered by the man who owns it. If we 
wish to discuss what is right and wrong in regard to the re- 
turn on capital we must include all capital, whether engaged 
in industry or not ; and we must analyse the return which 
accrues, not on one form only, but on all forms of capital. 

I. "Wages of Management. 

1. There is indeed one part of the employers' receipts 
which cannot be properly included as part of his profit, and 
which recent economists have rightly considered under an 
entirely different head. This is the element termed Wages 
of Management. It is plainly distinct even in connexion 
with capital employed in industry, for in a Joint Stock Com- 
pany the owners of the capital will for the most part take no 
effective part in the management, and the wages of manage- 
ment will be paid to men who do not own any part of the 
capital. Thus in a Railway Company, the shareholders and 
debenture-holders own the capital, but they take no real part 
in the management ; some of them do not even familiarise 



Wages and Salaries 185 

themselves with the half-yearly reports, and few of them ever 
attend the meetings or send proxies, unless on some very un- 
usual occasion, and after an active whip for their suffrages. 
Wages of superintendence and management are paid to 
numerous officials, from the general manager with some 
thousands a year, down to the foreman porter at thirty 
shillings a week : and of those who draw wages of manage- 
ment as responsible servants, none need be shareholders, 
and probably very few, if any, are shareholders, or have any 
part of the profits. The only persons who draw both are the 
chairman and directors; they are, on one hand, partners, 
and partners with considerable shares ; and, on the other 
hand, they draw fees for attendance at meetings, and thus 
obtain wages for their services. But on the whole it is true 
to say that the shareholders get profits, but no wages of 
management ; and on the other that the responsible servants 
get wages for managing the concern, but draw no profits. 
Such a case brings out the impossibility of drawing a line 
between wages of superintendence and wages for labour. 
The foreman porter when he is directing other men is super- 
intending and managing ; but when he is himself handUng 
luggage or screwing up a coupling, he is labouring. The in- 
terconnexion is still closer in office work ; at one time a clerk 
is writing invoices which are necessary for the safe and regular 
conveyance of goods, at another he is checking returns ; in the 
one case he may be said to be working at the business of the 
company, in the other to be superintending and checking the 
work of others. We cannot distinguish them as manual labour 
and head work, nor as responsible and mechanical employ- 
ment, for the driver of an engine is in a very responsible 
position, and yet he is doing work, not superintending the 
work of others. We cannot distinguish the one kind of 
service from the other ; though it may serve to classify 
them by the manner in which they are commonly paid, and 
to say that those who labour are paid weekly wages and 
those who superintend are paid quarterly salaries. This is 
a very crude way of dividing the groups of workers and 
superintendents ; but the different modes of remuneration 



1 86 Duty in regard to the Return on Capital [Ch. Xlll. 

roughly correspond to different kinds of service, and may- 
be taken as representing the two classes of servants. 

2. For though there is such difficulty in classifying the 
different grades of service, the fact that there are such dif- 
ferent grades is of the highest importance. Superintendence 
and management, what may be called responsible service, is 
sometimes remunerated on a very liberal scale, and there are 
not wanting signs that the labourer is inclined to view these 
large payments with some little jealousy. Thus, when some 
years ago the Midland Railway reduced the payments to 
a very large number of their servants, there was much 
dissatisfaction expressed because the 'gold-lace officials' 
suffered little if any diminution. It is also said that in 
working men's co-operative societies, the salaries of the high 
officials are by no means so large as in similar businesses 
conducted as private firms. In distributive societies they 
possibly do not need so much business capacity as firms that 
rely on competition, and the comparative failure in pro- 
ductive enterprise may possibly be partly due to neglect of 
this factor in success. It is quite possible that enterprise, 
shrewdness, and complete trustworthiness are qualities which 
the employer finds it well worth while to pay for ; that the 
example of heads of departments influences all their sub- 
ordinates, and that it is prudent for capitalists to pay almost 
any sum to secure or to retain the services of a thoroughly 
good man as a superintendent. In fact, it appears that if it 
were not worth while it would not be done. But the im- 
portant point remains that these large salaries are paid as 
wages and for services, and that they are in no sense paid to 
a man as a return on his capital. 

3. It has been necessary to go into this at some length in 
order to enforce the proposition that, when we are considering 
the return on capital, the wages of management must be 
rigorously excluded; and that in the case of those who 
themselves manage the business in which capital is invested 
a very large allowance must be made for the amount they are 
entitled to as wages for their successful management. It is 
easy to contrast the style in which the owner of a cotton mill 



Two Sources of Gain 187 

lives with that of his hands ; he has a handsome house, and 
sends his boys to a public school, while the hands live in a 
tenement, and may often have difficulty about threepenny 
fees. But a very similar contrast might be drawn between 
the manager of a bank or an insurance company and one of 
the copying clerks. The company pays the man of business- 
capacity handsomely, while the man who does mere drudgery 
has to manage on a mere pittance. It may be true that there 
is unfairness in the apportionment of wages for different 
classes of service, but this is an entirely distinct question 
from that of fairness in the apportionment between capital 
and labour. We want to discriminate the employer as 
capitalist from the employer as the energetic man of business ; 
and we are only called upon at present to consider the gain 
which accrues to him in the former capacity. 

n. How the Return on Capital is obtained. 

If, then, we exclude the wages of management, and take 
account of capital in all its various forms, we shall find that 
there are two sources from which the gain is ultimately 
derived — (a) on the one hand, it is obtained by securing a 
right to levy taxes, and {p) on the other hand, it is derived 
from success in catering for the wants of the public. It is 
here that the distinction to which allusion has been so 
frequently made between capital that is lent and capital 
that is employed in business comes into clear light. The man 
who lends money at interest bargains for the right to draw 
on the resources of the borrower ; if he lends to a nation he 
expects to be paid annually out of the proceeds of the taxes ; 
if he lends to a municipality he expects to be paid annually 
by means of the rates ; if he lends on mortgage to a land- 
owner, he expects to be able to obtain payment regularly 
out of the rental. It does not matter to him whether the 
nation or the city or the landlord use his money in a re- 
munerative manner or not. They may employ it profitably, 
or they may expend it in display ; it is all the same to him, 
so long as they are able respectively to fulfil their obligations. 



1 88 Duty in regard to the Return on Capital [Ch. xiii. 

They may use his money unproductively — whether usefully 
or not — or they may use it in a productive enterprise which 
proves a complete failure ; but so long as it does not involve 
the borrower in ruin, the lender's claim holds good, and is 
unaffected by the misjudgment of the borrower. For in such 
cases the lender counts to gain by his right to tax the 
resojirces of the borrower, and this definite right remains. 

On the other hand, he may gain by success in catering for 
a public want ; he enters into business, and supplies goods 
which the public buy, so that he replaces his capital at a 
profit. If business is good, his profit maybe very large; if 
it falls off he may merely replace his capital, or he may be 
forced to work for a time at an absolute loss. But whether 
profit is high or not it is always varying — as business itself 
fluctuates, — sometimes high, sometimes low, and sometimes 
disappearing altogether ; it can never be definitely calculated 
upon, and sometimes it does not accrue at all. This is the 
marked difference between the return which is paid on loans, 
and the return which is obtained by capital employed in 
business. The lender bargains for a definite rate of return, 
and bargains to receive it for certain ; the borrower's bank- 
ruptcy may deprive him both of principal and interest, and 
he is forced to take that risk; but by the terms of his bargain, 
and so long as the borrower can pay his way at all, the lender 
insists on a definite rate of return, and on having it paid 
without fail. The man in business is in a very different 
position; his gain is contingent, for he may not get any, 
and he cannot generally expect that any two years will be 
exactly ahke ; the second may be better or it may be worse, 
but it will not probably be precisely the same as the first. 
The one man counts to gain by taxation, and he can bargain 
for a definite rate of return at stated times ; but the gain of 
the other is necessarily contingent, as it accrues in the course 
of trade, and is affected by fluctuations of every kind. 

(A) 1. The man who lends his money to a Government ren- 
ders a very real service. This has never been denied. What 
has been maintained was that this was a service for which it was 
impossible to assess the fair remuneration, and that therefore 



A right to Tax the Borrower 189 

it should be done out of charity, if at all, as any demand for 
remuneration tended dangerously towards extortion. Public 
opinion and the law of the land alike agree at present in 
regarding bargains of this sort as allowable. The mere fact 
that borrowing offers the easiest means to any Government for 
procuring the use of capital— that it is in its superior facilities 
for borrowing that Government has an advantage over private 
capitalists or associations— makes it clear that the wise states- 
man may wish to borrow. He may intend to start public 
works which will prove remunerative, either directly or indi- 
rectly ; or he may have some scheme of educational improve- 
ment which involves a large outlay, and this can be most 
easily met by borrowing. The public works, like a railway, 
may prove remunerative directly; public works, like a har- 
bour, may facilitate commerce, and be remunerative indi- 
rectly; public expenditure on education may be beneficial 
to the inhabitants, and thus bring about in the more or less 
distant future an improvement in that most important element 
of national resources — the population. By aiding in any of 
these the lender does a service, and it is a service for which he 
may fairly claim compensation in money. The question of 
personal duty then will arise in this shape. Whether it is 
possible to discriminate between a fair and unfair rate of 
return for a loan? and Whether it is possible to guard against 
the danger of falling insensibly into extortion in connexion 
with such gains ? 

2. At the same time the fact that there is a need which the 
lender supplies can at least only give a justification for paying 
something ; it does not at all help us to understand how much 
it is fair to pay. The lender is put to some trouble, or risk, or 
privation, in making the loan ; but how much compensation 
is adequate? He may fairly claim to receive enough to com- 
pensate him, and the difficulty is to estimate the fair compen- 
sation. But there is always the danger of looking at it from 
the other side, of estimating the service rendered by the need 
of the borrower, and being satisfied to take whatever he is 
willing to pay. Now it is obvious that the greater the man's 
need is, the more he will pay rather than fail to get the 



190 Djity 171 regard to the Return on Capital [Ch. xill. 

accommodation ; and that the more necessitous a man's cir- 
cumstances, the greater is the rate which he will offer. This 
is equally true whether it is the temporary embarrassment of a 
rich man, or the last chance of an insolvent. In this latter 
case the risk would be great, and the lender might fairly ask 
for the promise of large compensation if he consented to 
undertake the risk. But the temporary embarrassment of a 
rich man may not mean that there is real risk in lending him 
money ; and it is tempting to measure the charge by what 
he can afford, or what he is ready to give, and not by what it 
costs the lender in privation and anxiety to meet this need. 
Wherever the rate of return is based on the necessities of the 
borrower, and not on the cost to the lender, there is real 
extortion ; for the lender gains by trading on the necessities 
of another. 

3. If it is not easy to discriminate in any single case, and 
to make sure that in the rate agreed on the lender has not 
taken advantage of the needs of the borrower, it is obviously 
impossible to get any help from examining a number of such 
cases and considering the market for loans. For there may 
be a number of eager and necessitous borrowers ; colonial 
governments anxious to attract emigrants, and indulging in 
costly harbour works and railways ; municipalities laying out 
parks or building libraries ; any of them may be terribly 
reckless in burdening posterity so as to defray present ex- 
penditure. If the rate of interest obtainable rises, it may 
only show that there are more people anxious to borrow, or 
that the borrowers are more anxious for accommodation. 
And by floating such schemes the responsible authorities 
may be burdening a community with a heavy debt, which 
requires very heavy taxation in order to defray the interest. 
The market for capital only shows what the borrower on 
good security is, as a matter of fact, ready to give ; it does not 
show for certain what is adequate compensation to the lender. 

4. There may, as a matter of fact, be extortion in exacting 
the interest agreed on in connexion with Government loans. 
There is such a thing as a limit of profitable taxation, and if 
the burden imposed by borrowing were such that the limit of 



Extortion in cotmexion with Government Loa?is 191 

profitable taxation had been passed, and the country was 
becoming more and more exhausted annually in order to 
meet the demands of foreign creditors, there would be real 
extortion ; and there might be serious distress before the 
pressure became so serious. The precise object for which 
the money was borrowed is not of importance ; it may have 
been for public works which did not prove remunerative, or 
for great institutions which the country could not afford. 
Where the fault lay, or whether the loss was due to unfore- 
seen circumstances, does not matter ; if a burden of interest 
is pressing so heavily on a country as to exhaust it, there is 
extortion in continuing to collect the taxation which is needed 
in order to meet the demands of the lenders ; and it is most 
desirable on every account that relief should be given in 
some form or other. 

There are two countries at present where the pressure of 
public indebtedness is very severely felt ; different in the 
forms of government, in the climate and productions and 
everything else, but alike in suffering from a burden of debt 
which retards progress, even if it does not positively exhaust. 
In New Zealand and in Egypt alike there was a period of 
rapid borrowing on account of schemes which have not met 
the expectations of those who brought them forward. Such 
a state of affairs is recognised by law and public opinion, and 
to repudiate the debt would be dishonest ; if a nation has 
made a bad bargain it is a crime to attempt to evade it, or to 
confiscate the property of men whose only crime is that they 
have placed confidence in a national promise. At the same 
time the scrupulous man might prefer not to be placed in 
such a position ; he might dislike to feel that his income was 
wrung from starving felaheen. If so, his remedy is an easy 
one — he will avoid subscribing to Government loans unless 
the country is so rich, or the rate of interest is so low, that 
there is no appreciable risk that the pressure of taxation to 
meet the interest due to him will be a serious burden. 

5. There is, however, another way in which the remunera- 
tion received by the lender may become excessive, as he or 
his descendants may profit through a national necessity. In 



192 Duty in regard to the Return on Capital [Ch. xill. 

the time of the French wars, Pitt was obliged to borrow on 
terms which were high even then, and were ludicrously out 
of proportion to the rate which is current at the present 
time. The greater part of the national debt has been so 
financed that these anomalies are done away with ; but there 
were many years when the nation continued to pay terminable 
annuities or tontines at a most extravagant rate. Here it 
may be felt that the nation made the bargain with its eyes 
open, that as it was able to meet it there was an obligation 
to abide by it, and that there was no call on the part of the 
fortunate creditors to offer to be satisfied with less. There 
certainly was not ; but at the same time it may be felt that 
they were lucky dogs who were able to make an exceedingly 
good thing out of their bargain. Attention is called to it 
here, because it reveals a criterion which we do occasionally 
apply and which does give a good test of the cost to the 
lender in making an advance. We feel that these men who 
drew their 7 or 10 per cent, were excessively fortunate, 
because the average rate of return which might be reaped by 
contingent profits had come to be so much lower. If the 
capitalist who carried on a trade could only average, apart 
from wages of management, 5 per cent., and the Government 
creditor was drawing 6 per cent, or 7 per cent., then he was 
getting a return which was felt to be excessive. And this is 
a sound criterion ; the ordinary rate of profit in any country 
serves to give an indication as to a fair rate of interest, 
for it gives a measure that is simply based on the cost to the 
lender and has no reference to the need of the borrower. 
The lender can obtain the ordinary rate of business profit, if 
he invests in railway stock ; he has at least a right to be com- 
pensated for the gain he sacrifices by not investing in an enter- 
prise of the sort, and he may certainly claim lucru7n cessans. 
But as the payment of any profit from a business — and at all 
events the rates of profit — are contingent, he may well be 
satisfied with less than the average rate of profit when he is 
going to get a regular return at a definite rate. On the 
other hand, if there is a more serious risk in lending on 
inferior security, he may demand more than the average 



Success in Catering for the Public 193 

rate of profit, so as to include insurance ; because he is 
really risking his principal — periaihim sortis. The average 
rate of business profit, that is of contingent return, gives 
a criterion as to the cost and privation for which the lender 
can fairly claim compensation ; though the element of less 
or greater risk must also be taken into account before it can 
be satisfactorily applied. 

6. The best criterion we can get for fair interest on a loan 
is found by comparing it with the average rate of profit from 
ordinary enterprise. It is likely to be free from extortion, 
for if the loan is sensibly applied to remunerative public 
works or to developing the resources of the country and the 
nation, it ought to be possible to earn this rate of return at 
least, so that the Government need not be out of pocket 
in paying the interest on its debt. Even if it borrows for 
unproductive expenditure like a war, the lender can satisfy 
himself or anyone else that his demand was not excessive. 
The profit obtained in business is entirely different in 
character from the gain that accrues by lending ; the lender's 
gain arises from the fact that he has acquired a right to tax, 
and the man who carries on a business in the face of com- 
petition has neither the power nor the right to tax. But 
although they are so different, they are not entirely uncon- 
nected, as the capitalist may choose to obtain gain either in 
one fashion or the other, and the man who is only compen- 
sated for gain he might have had by trading, with due 
allowance for risk, has not asked an excessive rate. 

(B) 1. The return which accrues to the man who is engaged 
in business comes from separate and distinct transactions, 
some of which may be more successful and others less. 
Some branch of the business may hardly pay, but it may be 
worth while to keep it going in order to avoid waste, or 
because it leads to remunerative business. Thus it is com- 
monly said that the grocer makes little or no profit on sugar, 
but finds it worth while to deal in it, so that customers may 
not go elsewhere for their tea. And so in manufacturing; 
one order may be turned out at a handsome profit, another 
at little better than a loss, or the works may be almost idle 



194 DtUy in regard to the Return on Capital [Ch, xiii. 

for weeks, and the profit on months of hard work may be 
absorbed in keeping things together. In building operations 
undertaken on a contract whicli runs on for several months 
or years, there may be changes in the rates for material 
or wages which will render the whole work highly profitable 
or very much the reverse. There is no regular rate of return 
and therefore there can hardly be a question as to a fair rate 
of return. We may strike an average of the transactions in 
a given period as they have occurred in all sorts of different 
businesses, and thus get an average rate of profit for that 
time ; we may expect that the average rate for some months 
in the future will be higher or lower than in the past, but 
there is no regular rate ; there is sometimes a big haul and 
sometimes a little one, as in the herring fishery ; but there 
is no regular and constant rate at all, because the whole gain 
is contingent. The ethical question must present itself in a 
different shape from that we have considered, and we must 
not ask, What is a fair rate? but, What is a fair division of 
the produce ? 

2. Labour and Capital are the two factors interested in 
the division, and the employer who manages the business 
is the agent in the division. In putting the matter in this 
way we need not forget that there are many persons who 
hold that there should be no such division, but that the whole 
produce should go to labour. No industry can be carried on 
without labour; that is true, labour is a necessary element 
in all production. But labour is not the sole agent in pro- 
duction ; the strength of purpose which hoards and the 
enterprise which uses a hoard are elements which bring the 
great forces of nature into play, so that human strength and 

, skill may be to some extent assisted, and to some extent 
superseded. From all that has been said on the formation of 
capital, and on its effectiveness when formed, it seems to 
follow that the capitalist has a claim to some share in the 
product. 

3. We may first look at the division of the gross produce, 
that is of the total amount which is realised by the sale of 
the product. It is obvious that this amount will vary accord- 



The Fair Division of the Produce 195 

ing as trade is good or bad ; it is also certain that for many 
purposes these fluctuations are an evil, though owing to the 
superior fluidity of capital, the capitalist can adapt himself 
to them and take advantage of them more easily than the 
labourer. But so long as these fluctuations continue there 
must be variations in the amount of the gross produce and 
in the sum which can be divided. On the whole, too, it 
seems that the only fair principle is, that the division of the 
produce should be according to the relative importance of 
each factor in production. That is to say, if any business 
requires ;^5ooo to buy the materials and to keep up the 
buildings and plant, and ^5000 to feed and maintain the 
men in good condition, the labourers might claim half the 
produce ; while if it required ^9000 to buy materials and 
maintain the building and plant, and ^1000 for wages, the 
labourers would only be justified, on the same principle, in 
claiming one-tenth of the product. Now, in by far the 
greater number of industrial employments during the last 
hundred years there has been an immense increase of 
machinery, and the relative importance of labour as a factor 
in production has been greatly reduced ; this has been 
pointed out above in a different connexion. It therefore 
follows that there must be a general depression of labour 
relatively to capital in the division of the gross produce; 
and that of the total wealth produced a relatively larger share 
will go to capital, and a relatively smaller share will go to 
labour. That this has been the case is patent to all, and is 
matter of common remark ; the division between the rich 
and the poor is far more marked than it was ; the long 
streets of immense mansions in London, of villas in the 
suburbs, or the great residential towns at the seaside, tell of 
a very numerous reiitier class, and it is a matter of common 
belief that most of the middle classes, including retail shop- 
keepers, live in greater comfort than the corresponding 
classes in the last generation. About this there is no 
dispute ; on the other hand, the question as to whether the 
wage-earners, skilled and unskilled alike, organised and un- 
organised, have gained or not by the changes of the last fifty 



196 Duty in regard to the Return on Capital [Ch. xiii. 

years, is hotly debated. There certainly is a good deal of 
evidence which goes to show that there has been a relative 
depression of the labourer as compared with the capitalist, 
and that the labourer has not enjoyed such a large pro- 
portional share in the increased wealth of England in 1890, 
as he enjoyed of the comparatively small amount of wealth 
produced in 1800. Considered as a question of honest 
bargaining we might ask, How could he ? He does relatively 
less. Considered as a question, not of generosity, but of 
justice, we might ask, Why should he, since he does relatively 
less as a factor in production? Why should he continue to 
share in the same proportion as before ? From all which it 
appears that it is not easy to get to close quarters with the 
right and wrong in regard to this division unless we look at 
the matter in some detail, and do not content ourselves with 
stating a broad principle of justice. 

4. We may therefore consider the division which the 
capitalist makes as a matter of practice. There is constant 
outlay required to continue his business as a going concern ; 
there is (a) an outlay on machinery and materials, and also 
(<^) an outlay on wages, including salaries ; with the former he 
maintains his plant, with the latter his labourers ; {c) the differ- 
ence between his outlay and his receipts by the sale of the 
produce is profit, and this he retains as remuneration for the 
capital employed. There is, taking the average of any period 
of years, a minimum rate which is necessary to induce him to 
continue in that business ; if he conducts his business well, 
or is specially fortunate, he may get much more, but he will 
be unwilling to take less. He may submit for a long time to 
a very low return rather than attempt to realise and remove 
his capital; it is impossible#to state in general terms the 
amount of success which he must have in order to be tempted 
to continue, but unless he thinks he can work at some sort of 
a profit, and be remunerated for incurring the risks and 
anxiety of the business, he will not engage in it, or will not 
voluntarily remain in it. This may be called the necessary 
remuneratioti of enterprise, as unless there is reason to expect 
such a return the enterprise will not be forthcoming ; but it 



Necessary Remuneration of Enter p7'ise 197 

may vary immensely in different places, or in the same place 
at different times. But we are able to find a rough indica- 
tion of this necessary remuneration by looking at one kind of 
enterprise ; there are particular advantages in rural employ- 
ments which render them attractive to many men, and there 
are not such sudden fluctuations as in many other employ- 
ments, even if we do not allow anything for superintendence. 
The rate of return which a man expects to get when he uses 
his capital as a farmer, or the rate of return which a moneyed 
man expects to get when he sinks his capital in land and 
buys an estate, may be taken as helping to indicate the 
remuneration which is necessary in order to induce a man to 
go on with any kind of business. 

(i) This necessary amount will, of course, vary according to 
different social conditions — political security and the like. 
In countries where there is a great deal of available capital 
people will be forced by competition to be content with a 
smaller inducement than in new lands where capital is much 
wanted for many purposes. But on the whole the return 
that is obtained by working land, or by the man who sinks 
his capital in purchasing an estate, may be taken as an index 
to the remuneration of capital that is necessary, there and 
then, if the owner is to enter or to continue to follow any 
form of enterprise. It is, of course, only an index, as there 
must be an allowance for greater risk, either physical or 
commercial, and less attractiveness, perhaps, in various 
other employments ; and the necessary remuneration for 
capital in manufacturing gunpowder, or in weaving cloth, at 
any place and time, may probably be explained by some such 
allowances on the basis of the rate indicated by the return 
from land, but will not be identical with it. 

If the capitalist does not, on an average, earn this neces- 
sary rate of remuneration over any period, he will withdraw 
from the business, and in so far as the same thing occurs in 
the trade generally, that industry will decline, and perhaps 
decay altogether in that district. This entails a great waste 
of capital, but, as has been noted above, it involves far more 
serious and irreparable loss to the labourers. They cannot 



198 Duty in regard to the Return on Capital [Ch. XIII. 

find employment at once, they may not be able to find it at 
all without emigrating, and a period of idleness, even if it 
does not necessitate a change of abode, must be a serious 
drain on the savings of years, if it does not plunge the man 
hopelessly in debt. There can be no more serious evil to 
the labourers in any employment than that the master's 
capital should fail to receive the necessary remuneration, 
and that the works should be closed in consequence. 

(ii) This necessary rate, then, gives the minimum which the 
owner must receive, on an average, of his transactions over 
any period, to induce him to continue in his enterprise ; and, 
of course, the profits on particular transactions will often be 
very much larger than the ' necessary rate.' In times of 
good trade they will exceed the necessary rate on every 
transaction for a longer or shorter period, and in cases where 
a man has a trade secret, whether protected by patent or 
not, or has any other means of defying competition — as by 
agreeing with all possible competitors — the profits may be 
very large indeed. But wherever competition is in effective 
operation no manufacturer can hope to enjoy exceptional 
profits for long, as the action of other competitors, and their 
efforts to undersell him and get a footing in the trade, will 
force him to diminish his prices, and thus to leave a smaller 
margin between his outlay and the value of the product. 

Exceptional profit, secured by agreement, is a phenomenon 
that is attracting much attention in the United States, where 
rings and trusts have been formed in a fashion that is un- 
known in this country ; in it we notice the reappearance, 
under new conditions, of the evils which mediaeval legisla- 
tors attempted to prevent when they legislated against 
engrossers and forestallers. When such schemes are worked 
successfully manufacturers are able to gain at the expense 
of the public, instead of merely gaining because they have 
succeeded in serving the public ; there is no justification for 
such gains, though in some cases the public are quite as well 
and cheaply served by the monopolists as they could hope to 
be by competing traders. But an exceptional profit which 
arises temporarily or incidentally in a trade which is subject 



I7idustrial Partnerships 199 

to competition is not likely to do much more than reimburse 
the capitalist for periods when he did not even receive the 
necessary amount of remuneration, but continued to work at a 
positive loss in the hope that trade would mend. 

5. There are many schemes in the present day for effect- 
ing a more equal division of profits, or for enabling the 
labourer to participate in profits. 

{a) In so far as the necessary remuneration of the capitalist 
goes, it is not possible to reduce it and pay any portion 
away ; the labourer can only share in this if he is an owner 
of some part of the capital, and there is a scheme for indus- 
trial partnership. There are, however, some grave practical 
objections to industrial partnership in any of the forms in 
which it has been tried in this country. It implies that the 
labourer shall invest all his savings in a given enterprise, 
and in the enterprise to which he looks for the payment of 
his wages. If, owing to any new invention or other change, 
the business should cease to pay and should ultimately fail, 
the labourer will be cast on the world, and the very same 
disaster which throws him out of employment will swallow 
up all his savings. A prudent man may well desire some 
other form of investment. But apart from this there may be 
considerable difficulty in framing a working constitution so 
that the labourers with small shares and the large share- 
holders shall be duly represented and have complete con- 
fidence in the management. If industrial partnership can be 
worked out in a satisfactory form it would enable the 
labourers to share in the necessary remuneration, and give 
them a portion of the exceptional profit as well. 

(p) There is less difficulty in framing a scheme which shall 
first secure to the capitalist the necessary remuneration, and 
shall afterwards pay a portion of any exceptional profits to 
the labourers as a bonus. This may often serve as a means 
of obtaining exceptional profits, as the stimulus it gives may 
enable the partners to dispense with the payment of heavy 
salaries for superintendence ; and by rendering the men 
more eager to work and more careful at their work it may 
prove very remunerative. But such schemes have occasion- 



200 Duty in regard to the Return on Capital [Ch. xill. 

ally broken down through a want of confidence between the 
receivers of bonus and their employers. This may obviously 
break out when the employers assert that there is no excep- 
tional profit, and when the labourers believe that there ought 
to be a bonus, and that they have worked so hard as to 
deserve one ; and though it is good that there should be 
more diligent labour, it is not good that the strain of labour 
should be greatly increased without a constant, not a spas- 
modic, increase of wages. 

{c) On the whole the most practicable scheme for enabling 
the labourers to share in exceptional profits is one which is 
as nearly as possible self-acting, and therefore gives the least 
possible opportunity for dispute. This is attained in those 
trades where wages are paid according to a sliding scale ; 
this does not merely give a bonus to the labourer, and does 
not therefore stimulate to special work ; but it provides a 
means by which the ordinary wages of the labourer shall be 
raised at times A^hen trade is good, and thus enables him to 
get the benefit of those conditions which give rise to excep- 
tional profits. There may be great difficulties in framing a 
sliding scale, and it will need to be revised from time to time ; 
but these difficulties have been faced in many trades with 
great success. This scheme certainly affords the simplest 
means for the labourer to benefit by improved trade ; it does 
not offer him any share in the profits, but it forces the 
capitalist to increase his outlay in wages at the times when 
his profit is becoming exceptional. It gives the same sort of 
benefit, but without implying any unusual confidence between 
the two parties ; and it gives it in a form in which it is most 
likely to promote the labourer's comfort, and without 
imposing any new obligation or special strain upon him. 

(). If there are periods of exceptional profit, or transactions 
of exceptional profit, there are also periods when the employer 
has to exercise the greatest care in order to make any profit 
and to reap the necessary remuneration which will induce 
him to continue in the business. Competition is so keen, 
we may suppose, that he cannot get larger receipts by the 
sale of the product, and the only saving he can effect is by 



Relative and Absolute Depression of Labourer 201 

looking carefully at his outlay and seeing if he can cut it 
down. 

(^) The cost of materials does not lie in his own control, and 
he cannot alter it ; he may have more choice about repairs 
to his buildings and the keeping up of his plant; but a 
niggardly expenditure in these directions may prove very 
false economy. If he saves in petty repairs he may soon 
find it necessary to spend a large sum in substantial repairs ; 
if he does not introduce new improvements, but is contented 
to work with old-fashioned machines, he condemns himself 
to carry on the competition with his rivals on most unequal 
terms, and he cannot hope to prosper. The one element of 
outlay which he can reduce without serious damage to his 
own property is the labour bill ; and therefore he is apt to 
look out for every means of reducing this item of expenditure, 
either by paying a lower rate of wages, by employing fewer or 
less skilled hands, or by getting more work out of those whom 
he does employ. These are the various expedients by which 
the employer is tempted to grind down the labourer — 
whether he yields to the temptation or not. The history of 
the latter part of the last century and the beginning of this 
seems to show that employers did yield to the temptation in 
some cases ; in fact, it may be doubted, as was stated above, 
whether they had power to resist it, until they were assisted 
by legislative interference. In so far as the labourer was 
ground down, and forced to submit to a lower standard of 
comfort, there was not merely a relative depression, but an 
absolute depression of the labourer. Not only was it true 
that he was a less important factor in production relatively 
to capital, and that he received a relatively smaller share 
than capital in the division of the produce, but that he 
received an absolutely smaller portion of the necessaries and 
comforts of life, and that he was positively worse off than 
before. 

{F) It is necessary to insist on this distinction so as, if 
possible, to avoid the possibility of confusion. The relative 
depression of the labourer appears to be inevitable, as 
human skill adapts physical forces to carry on industrial 



202 Duty in regard to the Rettirn on Capital [Ch. xiii. 

processes ; but since these physical forces are so powerful, 
and supply the necessaries and comforts of life in such 
abundance, the labourer may, when the readjustment has 
taken place and the time of transition is past, find that he 
enjoys a larger amount of the comforts of life than he did 
before. He may find that though he gets relatively less, a 
smaller proportion of the increased total, he gets also 
absolutely more. The additional production may be so 
great that a smaller share of the larger sum amounts to 
more than the larger share of the smaller sum which he 
formerly enjoyed. It therefore seems possible that, while 
in the progress of society there has been a gradual depres- 
sion of the labourer (as a factor in production and as sharing 
in the produce) relatively to capital, there has still been no 
depression, but an improvement, in the condition of the 
labourer absolutely. On the other hand it is contended by 
socialists, that though this is theoretically possible, it has not 
occurred in practical life. It is urged that there has been 
not only relative but absolute depression in the past, and that 
we may expect not merely continued relative depression, as 
we certainly may, but continued absolute depression, so long 
as the present social regime, and capitalistic era, are permitted 
to continue. 

ic) While, on the one hand, it is perfectly clear that there 
have been times, like those of the industrial revolution, when 
the labourer was forced to submit to absolute depression, it 
is also clear that there have been cases where the application 
of machinery to some department of industry is effected 
without detriment to the labouring classes. For example, 
the invention of the locomotive has revolutionised the internal 
carrying trade; it was feared that inns would be ruined, 
coachmen and guards done away with, and that horse- 
breeders would be ruined. But the enormous increase of 
travelling which has arisen in consequence of the facilities 
which railways offer has called for a far larger amount of 
labour than was employed before, in the capacity of .engine- 
drivers, guards, and porters. It may even be doubted whether 
the very occupations which have suffered most have suffered 



The XV and the XIX Centuries 203 

at all ; there are certainly far more inns and hotels than ever 
before ; the employment of horses in local traffic and as 
subsidiary to the railways must be very large. The North 
Western Railway requires an enormous number of horses, and 
the excellence of the English cart-horse has not declined since 
railways came in. There is as much hunting or more than 
before, and coaching is not extinct. The outlay for labour 
all round must be immensely greater than it used to be, and 
the labourer has been greatly benefited by the facilities for 
cheap travelling. In such a case there has been relative 
depression, but absolute improvement so far as labour is 
concerned. 

It would be interesting to endeavour to investigate the 
results accurately in some of the minor employments in 
which machinery has been recently introduced. How is 
the condition of seamstresses affected by the sewing-machine ? 
How is the condition of copyists affected by the typewriter? 
Not of course those who try to compete against it, but those 
who use it? Far more sewing and far more copying is done. 
Labour is a smaller factor than before, but is it worse off or 
not in consequence of the change? We need not pause to 
consider each particular case, but we may endeavour to 
examine the course which affairs have taken over a con- 
siderable period, and to see how far they tell in favour of 
either view. 

(r) Here, then, we are brought to consider a simple matter 
of fact; has there, on the whole, been an absolute depression 
of the labourer under the influence of capital? Those who 
insist that there has, point triumphantly to the fifteenth cen- 
tury and challenge a comparison of the labourer's position 
then and now. To the fifteenth century, then, let us go ; it 
was a time when capital had been but little formed in Eng- 
land, and when it was chiefly employed in commerce ; there 
was little scope for investing either in agricultural or indus- 
trial pursuits — though the weaving trades were an exception. 
On some points we have sufficient data for instituting a 
definite comparison, in other cases the data are wanting. 
The hours of labour of the fifteenth century peasant were 



204 Duty in regard to the Return on Capital [Ch. xiii. 

very long, as they lasted from five in the morning till half- 
past seven at night, with intervals which came to about two 
hours and a half. There is reason to believe that employ- 
ment was very irregular, and that the day labourer was idle 
for half his time, so that even though the rate of day wages 
was high, when the difference of the value of money is taken 
into account, the labourer's income was not large. As to 
his command over the comforts of life we know that there 
are many simple luxuries which he could not procure, — tea, 
coffee, tobacco, oranges ; and that he had no access to news- 
papers or other literature, and no opportunity for travelling. 
As to the things he could procure we cannot judge correctly 
of their quality; but from the frequency of the epidemics 
that visited the country, it is impossible to believe that the 
labourer was well housed or had wholesome food. The 
furniture in the mansion of a city magnate like WilHam 
Canynge was so simple that it is most unlikely that the 
peasant had even a bed in his cabin. When we do not con- 
tent ourselves with quoting the rates of wages, but try to 
picture the conditions of life, it appears that rude and laborious 
as is the agricultural labourer's life to-day, he is not so 
utterly sunk in sordid drudgery as was his prototype in the 
fifteenth century. If we look at the matter since the begin- 
ning of the capitalist era we may say that while there can 
be no doubt that labour has lost its preeminence in produc- 
tion and has been relatively depressed, there is no proof 
whatever that it has absolutely suffered, and has been per- 
manently ground down by the influence of capital. 

While this is true if we look at the conditions of employment, 
it is equally true if we consider the numbers of the unemployed. 
There are terrible accounts of the scarcity of work in London 
in the fifteenth century, and of the violent outbreaks against 
foreign competition to which it led under Henry VIII. The 
evil did not abate, and was greatly increased in the rural dis- 
tricts by the number of enclosures in the sixteenth century. 
Some idea of the desperate condition of affairs may be gathered 
from an estimate of the pauperism at a later date, when in- 
dustry and commerce were reviving, and in a town which 



XVI I Ceiitiny Pajiperisvi 205 

was awakening to a career of great prosperity. In Sheffield 
in the year 1615, out of a population of 2207, there were 
no fewer than 725 persons who were begging poor ; of the 
remainder, 160 families were so hard pressed that they could 
not afford to contribute towards the maintenance of the 
others, but the whole expense had to be defrayed by the 
contributions of a small body of 100 householders, and these 
were only artisans, not one of whom could keep a team on 
his land, while only two had ground enough for a cow. We 
must remember, too, that in these days there was little or no 
provision made for the shelter of the poor ; that there were 
no workhouses, that relief was administered with a most 
grudging hand, and that the able-bodied beggar was treated 
as a criminal. There can be little doubt that at the opening 
of the capitalist period, in a rising town, the paupers were 
infinitely worse treated and were in a far larger proportion 
to the population than they are at present. Sad as it is that 
there should be so many paupers and so many unemployed 
in the present day, there is every reason to believe that the 
unemployed and the pauper of Tudor times, as well as the 
employed, were worse off than the corresponding classes 
to-day. 

{d) This conclusion, while it may lead us to reject exag- 
gerated statements about the increasing degradation of the 
labourers, cannot be regarded as at all satisfactory; for it 
seems that while the wealth of the country has so largely 
increased the labourer has not shared greatly, if at all, in the 
gain. But can this sad result be ascribed to the action of 
capital? Is it clear that capitalists could have prevented it? 
In comparing the two periods we must remember that there 
has been an enormous increase in population ; that the 
present population of England is six or seven times what it 
was in the fifteenth century. The labourer's standard of 
comfort has not been raised, and the population has increased 
to almost the full extent which our increased power over the 
means of production allows. The labouring classes in their 
millions receive far more than the thousands of labourers did 
before the era of capital commenced ; but they accept the 



2o6 Duty in regard to the Return on Capital [Ch. XIII. 

traditional standard of comfort, and by rapid multiplication 
the successive opportunities for raising the standard have 
been lost. It thus appears that we can completely account 
for the sad fact that the labourer has so little additional com- 
fort, without for a moment supposing that he has been 
steadily ground down. If the standard of comfort had 
obviously declined we could not attribute the change to the 
force of population, but should have to look for the explana- 
tion in the oppressive action of capitalists ; but where the 
complaint is that the standard of comfort is so little raised 
we do not need to seek any more remote cause, but can explain 
it by saying that the increase of population has gone on so 
fast as to absorb the opportunities of improved comfort which 
the labourer might have enjoyed. When this is taken into 
account we may say with some confidence that there is no 
proof whatever that capital has exercised a steady influence 
in grinding down the labourer ; he has been but little raised, 
but he has not been steadily degraded. There is therefore 
no reason to anticipate that the grinding down will continue, 
especially when we remember that the cases which appear 
to give most justification for this fear occurred under social 
conditions of a very unusual character, and which have long 
since passed away. 

(^) At the same time it must not be forgotten that there is 
real danger of grinding down the labourer, and that there is 
constant need to be on the guard against it. Organisations 
of labourers to maintain their own interest in this matter are 
the most effective weapons, but it does not merely concern 
the operative classes. It concerns the nation as a whole ; 
just as it is short-sighted of a capitalist to allow his buildings 
and plant to fall into bad repair, so it is short-sighted of a 
nation to allow the labouring class to be reduced to a worse 
condition of mind. Any pressure which threatens to weaken 
or degrade them is to be resisted by the legislature, and pos- 
sibly can be resisted in no other way. Such interference is 
not really pauperising if it improves the conditions of work, 
and so benefits the worker without affecting the idler. There 
is more ground for anxiety lest the diminution of hours or 



shorter Hours and Better Workers ib^j 

increased rates of pay should have a disastrous effect on the 
position of this country as a competitor with other countries 
in foreign markets. But if the interference is really called 
for to prevent the weakening and degrading of the labourer 
there need be no cause for alarm ; the danger really lies the 
other way, lest our population should be so weakened and 
enervated that it could not continue to compete successfully. 
So far as shorter hours or higher pay are really used to make 
the artisan a better man, there is little fear but that they 
will also make him a better worker, and that the resources of 
this country will be increased rather than diminished by the 
change. There is, indeed, no royal road for attaining a 
better standard of comfort among the labourers ; legislation 
can often prevent them from being ground down, and can 
perhaps insist on their having opportunities for rising ; but it 
is only as they are inspired with better ideals, and with 
strength of purpose to realise them, that these opportunities 
will be turned to good account, and that the increasing 
wealth of the country will tell very decidedly on the condition 
not only of those who succeed in saving capital and rising in 
the world, but on those who continue to live by wages as well. 



III. Public Debts and Danger of Accidental Extortion. 

1. There are two points which may be taken into account 
before this long discussion is summed up. It has been 
pointed out above that in countries where there is much 
capital the owners are forced to be content with a low rate 
of necessary remuneration ; and that the indication of this is 
found in their willingness to have recourse to worse soils and 
to increase the extent or the intensity of their cultivation, 
despite the fact that they are likely to get a return at a 
diminished rate. When there is an increase of population 
and more food is needed, an increase of capital and more 
means available for producing it — in fact, when there is 
material progress as it is understood in modern times — there 
is likely to be a diminished rate of necessary remuneration to 
the capitalist. 



2o8 Duty in regard to the Return on Capital [Ch. XIII. 

2. In some of the countries of the world material progress 
of this modern type has been going on for centuries ; in 
some it is a thing of decades ; in others the history can only 
be counted in years, and as a consequence the necessary 
remuneration for capital in one country, say in New Zealand, 
differs very much from the necessary remuneration in 
another, say Holland or England ; and this difference has 
some very important consequences when we consider its 
influence on the distribution of capital throughout the world. 
Hitherto we have only had to consider the necessary re- 
muneration and exceptional profit in one particular place ; 
but it remains to consider what influence is exerted by 
varieties of necessary remuneration in different places. The 
necessary remuneration in New Zealand is probably nearly 
double what it is here ; and it appears almost as easy to get 
5 or 6 per cent, there as to get 3 per cent. here. The 
consequence is that there has been a steady drain of capital 
from the old countries to the new ; and that men prefer^ to 
live on the proceeds of capital lent to the New Zealand 
Government or municipalities rather than to engage in 
business enterprise in this country. There is danger of 
capital going abroad, not because it is driven out by any 
occurrences here, but because it is drawn out by the large 
return which is offered elsewhere. This cannot be corrected 
by cutting down the outlay in business, but it will correct 
itself gradually as capital is formed in the new lands and the 
owners are forced to be content with a lower necessary 
remuneration. 

3. The subject has now been dealt with in such a way 
that we can return to consider the danger of extortion. For 
purposes of illustration let us suppose that the necessary rate 
of remuneration in this country, in most kinds of trade, 
is 3 per cent, and that in New Zealand it is 5 per cent. 
We may then say that the man who lends money at 3 per 
cent, in this country or at 5 per cent, in New Zealand is 
only taking what he could have obtained by enterprise in 
either land, and that he is fully justified in asking for such a 
rate of return. But even so he is liable at any time to drift 



Accide7ital Extortion 209 

into the position of an extortioner and draw a gain at the 
expense of others. He may have lent on mortgage in 
England, and owing to the agricultural depression and the 
fall of rents the interest on his mortgage may absorb the 
entire return from the estate and more. In such a case, if he 
is paid, he must be paid at the expense of the landlord; the 
money may have been sunk in making real improvements in 
the estate, but if there is a great fall in rent nothing may be 
forthcoming in consequence of the improvement ; the entire 
loss has fallen on the owner of the estate, and the mortgagee 
has a legal right to exact his annual interest if he can get it 
anyhow. Even though the interest is so low it may acci- 
dentally become extortionate, because the lender is com- 
pletely secured, and draws a moderate gain without taking 
any share in the risks of bad times. 

In the same sort of way there may be accidental extortion 
in the case of loans to a foreign government. It is often the 
case that State-trading is expensive and badly managed, and 
the schemes for laying down railways and developing 
harbours may cost vast sums and fail to secure the direct or 
indirect remuneration that was hoped for. In such a case 
the man who has lent money at 5 per cent, has not asked 
an excessive rate ; but if 5 per cent, is not earned, directly 
or indirectly, he can only obtain his interest at the expense 
of the colonists and out of taxes they pay. The whole 
burden of failure falls on them, and the lender continues to 
draw his interest at their expense, and by means of an 
increase of taxation. 

4. This danger is not an imaginary one; for as capital 
becomes more abundant in any new country the rate of 
necessary remuneration is likely to decline, and there will be 
greater and greater difficulty in paying the interest at which 
capital was originally borrowed. Even if statesmen were 
perfectly wise, and if all public borrowing were for the sake 
of making remunerative works, there would be danger that 
the burden of the original interest would be increasingly felt, 
unless it could be readjusted by some financial operation 
like Mr. Goschen's. But statesmen are not all perfectly 



210 Duty in 7'egard to the Return o?t Capital [Ch. XIII. 

wise, and the public debts of the world are not all incurred 
for remunerative purposes ; there is a constantly increasing 
burden of interest which has to be defrayed by taxation, and 
which must have most serious results on the industry and 
commerce of the world. Of the total annual produce of the 
world, in 1882, something like ;^200, 000,000 was not divided 
between the labourer who works and the capitalist who 
conducts the enterprise, but went as a fixed charge to those 
who had lent capital in times gone by ; while much of the 
principal has been wasted or extravagantly used, the burden 
of interest has still to be defrayed. 

5. The exhaustion of the provinces under the Roman Re- 
public is so far analogous to the pressure which is exerted by 
foreign bondholders in the present day, that it is at least 
incumbent on us to look carefully at the state of the case, 
and see if it is practicable to check the evils which sapped the 
strength of the greatest power of ancient times. It is at all 
events possible for the scrupulous man to avoid having any 
personal part in this matter by abstaining from this mode of 
employing capital altogether; or, if that seems impracticable, 
the risk of accidental extortion will be reduced to the lowest 
possible point, if he only lends to very wealthy countries and 
for a low rate of return. 

The pressure of extortion, whether through demands 
for interest out of taxation, or through saving outlay by 
grinding down the labourer, will show itself in injury to 
national resources. It may be the exhaustion of the soil or 
the mines, as under the Roman rule; it may be in the 
degradation and weakening of the population. It is a real 
danger which only ceases to be serious when it is faced and 
kept in view. There may be legislative interference to check 
the grinding down of the labouring population, and there has 
been ; but it may be doubted if legislation can check the evil 
which may occur through reckless borrowing by a Govern- 
ment and subsequent exhaustion to meet the demands for 
interest. A bargain is a bargain, and no man and no 
Government is justified in repudiating an agreement because 
the bargain has turned out badly, especially if the mischief 



Accidental Extortion 211 

has lain in their own folly. But the man of probity and 
good sense may well scruple to lend his capital to a Govern- 
ment in terms which may lead to his drawing interest in a 
fashion which exhausts and impoverishes the country where 
his money is placed. 



CHAPTER XIV. 

The Enjoyment of Wealth. 
I. Right and "Wrong in Enjoyment. 

Here it seems that the task we had set ourselves might be 
brought to a close. We have examined the part which 
capital plays in modern society, the dangers which arise in 
connexion with it, and the manner in which it is being 
administered, and is likely to be, so far as we can look 
forward. We have tried to look at capital in itself, to see 
how it is formed, and how replaced, to note the nature of the 
service it renders to the public, and the character of its 
relation with the labourer. We have touched, too, on the 
considerations which should guide a man as to the direction 
in which he uses his capital, and the manner in which he 
bargains for a return ; and thus have examined personal duty 
in regard to social life. It is by the manner he uses his 
wealth, and the manner he gets his income, that the capitalist 
is brought into contact and exercises a direct influence on 
society at large; but it is not unnecessary to add a few 
remarks on the duties of private life as well — on the manner 
in which a man enjoys his wealth. For no man lives to 
himself alone, and there is a very real, if not very easily 
measurable, influence which the personal and private life of 
each exercises on the well-being of others. 

1. After all, the prospective enjoyment of wealth is never 
left out of sight altogether; even the miser looks forward 
to a continued enjoyment of the sight of his accumulations. 
It is for the sake of enjoying freedom from anxiety that some 



Recreation as Fitting for Work i\'i, 

men form a hoard and save capital ; it is for the sake of 
enjoying wealth that others enter into business and try to 
increase their income. The special ideas of enjoyment which 
any man cherishes, and for which he provides, are constantly 
before him ; the aims he has in view may affect his conduct 
in regard to the means he uses for attaining them, and they 
will at any rate affect the feelings with which other people 
regard his success. If he is merely vicious in his ideas of 
enjoyment they will grudge him his gain, while the man who 
has been generous and wise in the use of his wealth will find 
ready and hearty sympathy on all sides if he loses it. When 
we look at the character of personal life, and the manner of 
enjoying wealth, we may see that they are not merely 
matters of private duty, but that they have a real bearing 
on the condition of society at large. 

2. Stress has been laid above on the importance of work; 
and it has been asserted that according to Christian con- 
ceptions of duty the ideal for man is not a life of idleness 
but a life of work. It is this that will call forth the best of 
his powers, and that will enable him to benefit his fellow- 
men ; and it is when we keep this conception of life clearly 
before us that we advance one step towards discriminating 
in regard to what is right and wrong in the enjoyment of 
wealth. If man is primarily a worker, he is the better of all 
such enjoyment^as keeps him up to his best as a worker ; he 
is the better for such rest as recuperates him after work, and 
for such recreation as refreshes him and fits him for doing 
his work better. These are elements both of rest and 
recreation which it is positively right for him to enjoy ; such 
rest and such recreation, according to his powers and tem- 
perament, as keep him at his best, and enable him over a 
period of years to do the most he is capable of, are times of 
idleness and amusement which no one need grudge him. 

3. On the other hand, there can be no doubt that any 
enjoyment of wealth which unfits a man for work is wrong. 
If he takes a long holiday and gets into easy-going and 
irregular habits, so as to be unable to settle down again to 
the routine of ordinary duty and the monotonous round of 



214 The Enjoyment of Wealth [Ch. xiv. 

daily tasks, his idleness has been wrong. If his recreation 
takes the form of a ' wet night,' so that he finds himself a 
' bit chippy ' in the morning and unfit for work, his recrea- 
tion has been wrong. Any form of enjoyment which fits 
a man for his work is right, and any form of enjoyment 
which unfits a man for his work is wrong. The one is 
recreation since it recreates his energies, the other is dissi- 
pation since it dissipates them. 

These distinctions may be found to include a larger 
number of cases than might at first sight appear, but they 
can of course only be applied personally. What is necessary 
rest for one would be gross idleness for another ; what 
would amuse one and prove suitable recreation would bore 
another man to death. Still, the man of forty, who is not 
a fool, will have a very good idea as to what is rest and 
recreation for him, and what is idleness and dissipation ; he 
will be able to judge how things affect his powers of working. 
There may be a large number of enjoyments, however, to 
which it is difficult to apply this test; they seem to be 
things indifferent, as we cannot see that they have much 
bearing one way or another on powers of work. But after 
all, the duty of work is only one side of human life, and 
diligence only one part of human duty, and we may be 
able to test other enjoyments by their bearing upon other 
sides of human character. 

4. Any use of wealth that facihtates the development of 
any kind of skill or the refinement of taste has much to be 
said for it ; at all events wealth is not wasted if it promotes 
the cultivation of human faculties, intellectual or artistic. 
Enjoyment in connexion with the pursuit of knowledge or 
the practice of any branch of art is in itself wholesome and 
good ; and this is true of athletic games which improve the 
human body, as well as of any intellectual exercise which 
disciplines and improves the mind. On the other hand, 
there may be over-indulgence which mars rather than 
develops the mental and bodily powers,— a strain which 
exhausts the physique and plants the seeds of disease ; and 
while enjoyments which develop faculty and power are good 



^ 



Social Enjoyment 215 

so far as they go, enjoyments which exhaust the body or 
deteriorate the mind are obviously wrong. 

5. Man, however, is a social being, and it is a poor thing 
for him to aim only at his personal self-development; he 
may indeed have his reward and become the complete prig. 
It is far better if he can aim at mixing happily with other 
men, can learn to appreciate their excellence, to sympathise 
with their interests, and to make allowance for their faults ; 
because as part of a social circle his life is more complete 
than when he has no thought for anything but himself, and 
neglects all opportunity of correcting his one-sidedness, and of 
learning from the experience of others. And thus to mix and 
learn from others involves the expenditure of time and 
money in social enjoyments ; in fact, it is in connexion with 
entertainment that there is the most frequent temptation to 
extravagance. It might at least be kept within bounds if the 
host would always recollect that anything that is bad for him 
is probably bad for his guests, and that mere display for the 
sake of showing off is at best a vulgar pleasure. To cut 
down eating and drinking to the limits required by modera- 
tion, and which really conduce to pleasant social intercourse, 
would be no small gain, and would mean a considerable 
retrenchment of wasteful and injurious enjoyment of wealth. 



II. The Neglect of Opportunities and "Waste of "Wealth. 

1. In thus trying to mark out the modes of enjoyment 
which are wrong from those that are not, one may add that 
in so far as the owners use wealth so as to injure themselves 
and others in person and character, or so as merely to gratify 
a petty vanity by idly displaying it, there is ample reason 
for the indignation which is felt in regard to the luxurious 
expenditure of the rich. When ball decorations involve an 
expenditure of ^1000 on flowers there is an outlay which is 
wrong; not because it is unproductive consumption, but 
because it is a wrong kind of unproductive consumption, and 
is an idle display. It is extravagance like this that is to 
blame for setting class against class ; jealousy itself finds 



\ 



2i6 The Enjoyment of Wealth [Ch. xiv. 

little to fasten on in the case of a wealthy man who uses his 
wealth wisely and well, but it is aroused by evidences of 
extravagance and dissipation ; and when aroused it is ready 
to condemn everything that it cannot appreciate. 

2. There are some in the present day whose sense of justice 
is violated by the inequalities of life, and who cannot recon- 
cile themselves to that state of affairs where some enjoy so 
very much and others have so very little. But those who 
feel that communism is impracticable, and who, while they 
welcome every sort of effort at levelling up, fear that any 
attempt at levelling down would be a hindrance to future 
progress, must force themselves to accept inequalities in 
human life, as there are inequalities in other spheres. Those 
who take this standpoint will not be unduly severe in their 
criticisms of any man's expenditure so long as it is clear that 
he is not injuring himself and his property, and is getting his 
money's worth in something that is relatively permanent. If 
he is not unfitting himself for the duties of life, if he is culti- 
vating his bodily and mental powers, if he is enjoying genial 
intercourse with men of kindred tastes and forming ties of 
friendship with his neighbours, there will be but few to 
grudge him his wealth. It is the man who might have 
done all these things and does none of them, who has all the 
opportunities which wealth affords and throws them away, 
who is a mere idler, careless of anything but his own pleasure, 
and whose pleasures render him feebler in body and emptier 
in mind, it is such misuse of wealth that rightly rouses scorn 
and indignation. For all misuse of opportunities is bad, and 
the greater the opportunities are, the more shameful is the 
conduct of those who waste them. 

III. The Sacrifice of Enjoyment in its bearing on Material 
Progress. 

But even those who have not misused their wealth at all, 
who have had their money's worth in the best that a high 
civilisation can afford, who have been diligent in the duties 
that came to hand, and have made the most of every op- 
portunity by developing their own powers and tastes and 



Misdirected Charity 217 

cultivating the friendship of others, have not attained to the 
best standard in the use of wealth. There is higher virtue, 
a virtue that is found not in enjoyment but in sacrifice. 

1. There is the sacrifice that is involved in using wealth 
for others, that is the outward embodiment of care and con- 
sideration for the failures of life. Indiscriminate charity is 
good so far as it goes ; it shows a real if a somewhat spas- 
modic sympathy with suffering. Discriminating relief is 
better still, for it shows a more thoughtful care for the needs 
of others, and marks the man who is at pains that his help 
shall be given where it helps most. Preventive charity is 
best of all since it sets itself to diagnose the conditions which 
lead to poverty and attacks them in their beginning; it shows 
the greatest readiness to give time and thought to the suffer- 
ings of others. But in whatever way there is an effort to 
reduce the inequalities and mitigate the sufferings of human 
life, there is an effort which may be welcomed even if it be 
misdirected. Misdirected charity may do harm ; it may 
encourage dishonesty and hypocrisy and idleness, and all 
sorts of evils. But the man who stays his hand until he is 
absolutely certain his charity is well directed and cannot do 
any possible harm, will not find that he responds to many 
calls. Charity hopeth all things, and there are many cases 
when the sufferer may well have the benefit of the doubt. 
The poor are improvident and drink ; the rich indulge their 
vanity by silly ostentation. So long as so much money is 
wasted, and wasted in so many ways, why should the petty 
extravagances of the poor be so loudly blamed? To put it 
on the lowest grounds, if somebody is going to make ducks 
and drakes of the money, why should the poor never have 
the fun of trying their hand at the game? For after all, no 
human being can do much more for another than to give him 
opportunities ; no human being can compel another to use 
them aright. And those who have, may well sacrifice a por- 
tion of their possessions by using it, not for enjoyment of any 
kind, but to give better opportunities of education and work 
and comfort to others. 

In the progress of society there are many who are left be- 



2i8 The Enjoyment of Wealth [Ch. XIV. 

hind in the race through no fault of their own, whose power 
of work is superseded by machinery, or whose health breaks 
down under the strain of the struggle. And while we cannot 
wish to raise artificial barriers or stay the pace at which ma- 
terial progress advances, we ought to feel that it is incumbent 
on those who are succeeding, or have succeeded, to be mindful 
of others who have been less fortunate. To be mindful, too, 
of those who are starting in the race of life, and to see that 
they are as well equipped as may be for the course they have 
to run. To insist on equal opportunities for all to start alike 
seems vain, and to attempt to carry this out compulsorily would 
be disastrous. But to reduce the existing inequalities and to 
afford improved opportunities to all is worth aiming at, and 
this can be accomplished by the sacrifice of enjoyment and 
the generous use of wealth. 

2. Such sacrifice may tend to remove the inequalities of 
society, but it will not tend to raise society itself. For that 
we must have an aim which rises above the present possi- 
bilities of enjoyment altogether; we must cherish a better 
ideal than they can aiford. There is an absolute limit to the 
increase and enrichment of man upon the globe, but there 
are definite possibilities of advance in capacity and self- 
command and all that makes man noble. And those who 
cherish an ideal for themselves and for the race (formed in 
terms not of what man has but of what he may himself be), 
and who are trying to realise it in their own persons, are 
giving the best guidance to their generation for possible steps 
in progress. They are setting before us, not the means by 
which material wealth may be increased, but a clearer view 
of the objects for which it may be most worthily used, be- 
cause a better view of what man himself may be. As the 
heroes of every cause are ready to sacrifice life for the aim 
they set before them, so have they shown themselves ready 
to sacrifice every present enjoyment and to keep themselves 
free from every material interest in order to maintain their 
ideal of a better, less selfish, and purer human life. They 
have cultivated their powers, not by enjoying all the oppor- 
tunities that came to hand, but by trying to live without such 



Ascetics and Saints 219 

things and learning to live above them. And they have not 
lived in vain; the world owes much to the inventors and 
discoverers, it owes more to ascetics and saints. There have 
been men in all ages who have taught their fellow-men how 
to overcome nature and to acquire wealth ; there have been 
others who have showed them how to overcome themselves, 
to rise to a better conception of man's life, and thus to use 
their wealth so that it might tend to human welfare. 



Typography by J. S. Gushing & Co., Boston. 
Presswork by Berwick & Smith, Boston. 



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IN PREPARATION 

FRENCH LITERATURE. By H. G. Keene. 

THE REALM OF NATURE. With Maps and Illustrations. By 
Hugh R. Mill, University of Edinburgh. 

THE. STUDY OF ANIMAL LIFE. By T. Arthur Thomson, 
University of Edinburgh. 

THE DAILY LIFE OF THE GREEKS AND THE 
ROMANS. By W. Anderson, Oriel College, Oxford. 

THE ELEMENTS OF ETHICS. By John H. Muirhead, 
Balliol College, Oxford. 

OUTLINES OF ENGLISH LITERATURE. By William 
Renton, University of St. Andrews. 

SHAKESPEARE AND HIS PREDECESSORS IN THE 
ENGLISH DRAMA. By F. S. Boas, Balliol College, Oxford. 

THE FRENCH REVOLUTION. By C. E. Malley, Balliol 
College, Oxford. 

LOGIC, INDUCTIVE AND DEDUCTIVE. By William 
MiNTO, University of Aberdeen. 

THE HISTORY OF ASTRONOMY. By Arthur Berry, 
King's College, Cambridge. 

THE ENGLISH POETS, FROM BLAKE TO TENNY- 
SON. By the Rev. Stopford A. Brooke, Trinity College, Dublin. 

ENERGY IN NATURE. An Introduction to Physical Science. By 
John Cox, Trinity College, Cambridge. 

OUTLINES OF MODERN BOTANY. By Prof. Patrick 
Geddes, University College, Dundee. 

THE JACOBEAN POETS. By Edmund Gosse, Trinity College, 
Cambridge. 

TEXT BOOK OF THE HISTORY OF EDUCATION. 

By Prof. Simon S. Laurie, University of Edinburgh. 

BRITISH DOMINION IN INDIA. By Sir Alfred Lyall, 
K. C. B.. K. C. S. I. 

THE PHYSIOLOGY OF THE SENSES. By Prof. Mc- 

Kendrick, University of Glasgow, and Dr. Snodgrass, Physiological 
Laboratory, Glasgow. 

COMPARATIVE RELIGION. By Prof. Menzies, University of 
St. Andrews. 

THE ENGLISH NOVEL FROM ITS ORIGIN TO SIR 
WALTER SCOTT. By Prof. Raleigh, University College, 
Liverpool. 

STUDIES IN MODERN GEOLOGY. By Dr. R. D. Roberts, 
Clare College, Cambridge. 

PROBLEMS OF POLITICAL ECONOMY. By M. E. 

Sadler, Senior Student of Christ Church, Oxford. 

PSYCHOLOGY: A HISTORICAL SKETCH. By Prof. 

Seth, University of St. Andrews. 

MECHANICS. By Prof. James Stuart, M. P., Trinity College, Cam- 
bridge, 



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Horace Mann, will be adequately described and criticised. 

ARISTOTLE, and the Ancient Educational Ideals. By 
Thomas Davidson, M.A,, LL.D. Nearly Ready. 

ALCULN, and the Rise of the Christian Schools. By Andrew 
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ABELARD, and the Origin and Early History of Univer- 
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LOYOLA, and the Educational System of the Jesuits. By 
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HORACE MANN; or, Pubhc Education in the United 

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